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HUMBOLDT 

I  I  LJ  1     ITLJ  \J  L-sLJ  >  L 


MONEY 

.  AND  . 

THE    MECHANISM    OF    EXCHANGE 


BY 


Wj  STANLEY  JEVONS 


PART    I 


NEW  YORK 

THE  HUtlBOLDT  PUBLISHING  COHPANY 

19  A5TOR  PL-ACE 


3 
h, 


ENTERED  AT  THE  NEW  YORK   POST  OFFICE  AS  SECOND  CLASS  MATTER. 


NOW    READY. 

Number  6  of  Social  Science  Library. 

30TH  THOUSAND. 

I2mo,  Paper  Cover,  Price  25  cents.  Cloth,  75  cents. 

THE  FABIAN  ESSAYS. 

EDITED  BY  G.  BERNARD   SHAW. 

.ESSAYS  BY  G.   BERNARD    SHAW,  SYDNEY   JLIVIER,    SIDNEY   WEBB, 
WM.  CLARKE,  HUBERT  BLAND,  ANNIE  BESANT,  G.  WALLAS. 


WHAT  THE  PRESS  SAYS:- 

"The  writers  of  the  'Fabian  Essays  in  Socialism'  have  pro- 
duced a  volume  which  ought  to  be  read  by  all  who  wish  to  under- 
stand the  movements  of  the  time." — Daily  News. 

"  After  a  careful  and  conscientious  perusal  one  is  compelled  to 
admit  that  they  are  written  with  conspicuous  ability  and  sagacity 
from  the  Socialistic  point  of  view,  and  that  they  must  mark  a  de- 
parture as  notable  in  social  politics  as  the  famous  Essays  and 
Reviews  were  in  theology." — The  Scots  Observer. 

"We  think  every  minister  of  religion,  and  every  intelligent, 
earnest  Christian  ought  to  read  and  ponder  this  most  important 
and  fascinating  volume." — The  Methodist  Times. 

"  The  first  four  essays,  if  they  are  far  too  brief  to  represent  fully 
the  social  and  economical  strength  of  the  socialistic  movement,  are 
still  by  far  the  best  account  of  the  basis  of  Socialism  yet  published 
in  England ;  and  by  their  temperate  and  '  evolutionary J  spirit  can- 
not fail  to  be  of  great  service  in  dispelling  much  misunderstanding 
of  current  Socialism." — The  Academy. 

"The  whole  book  deserves  reading  as  a  thoughtful  and  inter- 
esting contribution  to  current  discussions." — Pall  Mall  Gazette. 

"We  attach  great  importance  to  this  collection  of  essays  as  a 
fair  and  competent  representation  of  the  Socialist  case." — Co-oper- 
ative News. 


THE   HUMBOLDT  PUBLISHING   CO., 
19  ASTOR  PLACE,  NEW  YORK. 


.    ' 


MONEY 


AND 


THE  MECHANISM  OF  EXCHANGE. 
BY  W.  STANLEY  JEVONS,  M.A.,  F.R.S.. 

P*OFES30R  OF   LOGIC  AND  POLITICAL   ECONOMY  IN  THE  OWENS    COLLEGE,  MANCHESTER. 


IN   TWO   PARTS— PART   ONE. 


PREFACE. 


In  preparing  this  volume,  I  have  attempted 
to  write  a  descriptive  essay  on  the  past  and 
pr*eent  monetary  systems  of  the  world,  the 
materials  employed  to  make  money,  the 
regulations  under  which  the  coins  are  struck 
and  issued,  the  natural  laws  which  govern 
their  circulation,  the  several  modes  in  which 
they  may  be  replaced  by  the  use  of  paper 
documents,  and  finally,  the  method  in  which 
the  use  of  money  is  immensely  economized 
by  the  cheque  and  clearing  system  now  being 
extended  and  perfected. 

This  is  not  a  book  upon  the  currency 
question,  as  that  question  is  so  often  dis- 
cussed in  England.  I  have  only  a  little  to 
say  about  the  Bank  Charter  Act,  and  upon 
that,  and  other  mysteries  "of  the  money 
market,  I  refer  my  readers  to  the  admirable 
essay  of  Mr.  Bagehot  on  "  Lombard  Street," 
to  which  this  book  may  perhaps  serve  as  an 
introduction. 

There  is  much  to  be  learnt  about  money 
before  entering  upon  those  abstruse  ques- 
tions, which  barely  admit  of  decided  answers. 
In  studying  a  language,  we  begin  with  the 
grammar  before  we  try  to  read  or  write.  In 
mathematics,  we  practice  ourselves  in  simple 


arithmetic  before  we  proceed  to  the  subtle, 
ties  of  algebra  and  the  differential  calculus. 
But  it  is  the  grave  misfortune  of  the  moral 
and  political  sciences,  as  well  shown  by  Mr. 
Herbert  Spencer,  in  his  "Study  of  Sociology," 
that  they  are  continually  discussed  by  those 
who  have  never  labored  at  the  elementary 
grammar  or  the  simple  arithmetic  of  the  sub- 
ject. Hence  the  extraordinary  schemes  and 
fallacies  every  now  and  then  put  forth. 

Currency  is  to 'the  science  of  economy 
what  the  squaring  of  the  circle  is  to  geometry, 
or  perpetual  motion  to  mechanics.  If  there 
were  a  writer  on  Currency  possessing  some 
of  the  humor  and  learning  of  the  late  Pro- 
fessor De  Morgan,  he  could  easily  produce  a 
Budget  of  Currency  Paradoxes  more  than 
rivaling  De  Morgan's  Circle-Squaring  Para- 
doxes. There  are  men  who  spend  their  time 
and  fortunes  in  endeavoring  to  convince  a 
dull  world  that  poverty  can  be  abolished  by 
the  issue  of  printed  bits  of  paper.  I  know 
one  gentleman  who  holds  that  exchequer 
bills  are  the  panacea  for  the  evils  of  humanity. 
Other  philanthropists  wish  to  make  us  all 
rich  by  coining  the  national  debt,  or  coining 
the  lands  of  the  country,  or  coining  every- 
hing.  Another  class  of  persons  have  long- 
been  indignant  that,  in  this  stage  of  free  trade, 
the  Mint  price  of  gold  should  still  remain 


205692 


2  [50] 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE, 


arbitrarily  fixed  by  statute.  A  member  of  I 
Parliament  lately  discovered  a  new  grievance,  j 
and  made  his  reputation  by  agitating  against  I 
Ihe  oppressive  restrictions  on  the  coinage  of  i 
silver  at  the  Mint.  No  wonder  so  many  I 
people  are  paupers  when  there  is  a  deficiency  | 
of  shillings  and  sixpences,  and  when  the 
amount  merely  of  the  rates  and  taxes  paid  in  j 
a  year  exceeds  the  whole  sum  of  money  cir-  : 
culating  in  the  kingdom. 

The  subject  of  money  as  a  whole  is  a  very  j 
extensive  one,  and  the  literature  of  it  would  ) 
fill  a  very  great  library.      Many  changes  are  ; 
now  taking  place   in  the  currencies  of   the  ! 
world,  and   important   inquiries   have    been  ! 
lately  instituted  concerning  the  best  mode  of  I 
^constituting  the   circulating  medium.     The 
information  on  the  subject  stored  up  in  evi- 
•dence  given    before    Government    Commis- 
sions,   in    reports    of  International    Confer- 
ences, or  in   researches  and  writings  of   pri- 
vate individuals,    is   quite  appalling   in   ex- 
tent.    It   has   been   my  purpose  to   extract 
from  this  mass  of  literature  just  such  facts 
as  seem  to  be  generally  interesting  and  use- 
ful in  enabling  the  public  to  come  to  some 
conclusion    upon   many   currency   questions 
which  press  for  solution.     Shall  we  count  in 
pounds,    or    dollars,   or   francs,    or   marks  ? 
Shall   we  have   gold  or   silver,  or  gold  and 
silver,   as  the  ^measure  of  value  ?     Shall  we 
employ  a  paper  currency  or  a  metallic  one  ? 
How   long  shall  we   in    England  allow  our 
gold  coinage  to  degenerate  in  weight  ?    Shall 
we  recoin  it  at  the   expense  of  the  State  or 
of  the  unlucky  individuals  who  happen  to 
hold  light  sovereigns  ? 

In  America  the  questions  are  still  more 
important  and  pressing,  involving  the  return 
to  specie  payments,  the  future  regulation  of 
the  paper  currency,  its  partial  replacement 
by  coin,  and  the  exact  size  and  character  of 
the  American  dollar,  regarded  in  relation  to 
international  currency.  Germany  is  in  the 
midst  of  a  great,  and  probably  a  sound  and 
successful,  reorganization  of  the  currency, 
both  metallic  and  paper.  In  France  the 
great  debate  upon  the  double  versris  the 
single  standard  is  hardly  yet  terminated, 
and  active  measures  are  being  taken  to  place 
the  paper  issues  on  a  convertible  basis. 
Among  the  other  countries  of  Europe — Italy, 
Austria,  Holland,  Belgium,  Switzerland, 
the  Scandinavian  kingdoms  and  Russia — 
there  is  hardly  one  which  is  not  at  present 
reforming  its  currency,  or  has  lately  done  so, 
or  is  discussing  the  proper  method  of  at- 
tempting the  task.  As  regards  all  such 
changes,  we  should  remember  that  in  the 
preseet  we  are  ever  molding  the  future, 
and  that  a  world-wide  system  of  interna- 
tional money,  though  it  may  seem  impracti- 
cable at  the  moment,  is  an  object  at  which 
all  those  should  aim  who  wish  to  leave  the 
world  better  than  they  found  it. 

I    wish    to    acknowledge    the    assistance 
have  derived  from  the  works  of  Mr. 


Seyd,  especially  his  treatise  on  "  Bullion  and 
the  Foreign  Exchanges,"  from  Profesao? 
Sumner's  "History  of  the  American  Currea- 
cy,"  M.  Chevalier's  work  "La  Monnaie," 
M.  Wolowski's  various  important  publication 
upon  money,  and  many  valuable  articles  in 
the  Journal  dcs  Economistes.  I  must  ex- 
press my  thanks  to  many  bankers  and  gen- 
tlemen for  information  and  assistance  kind- 
ly rendered  to  me,  especially  to  Mr.  John 
Mills,  Mr.  T.  R.  Wilkinson,  Mr.  Roberts, 
the  chemist  of  the  Royal  Mint,  and  Mr.  E. 
Helm. 

I  should  also  like  to  take  this  opportunity 
of  thanking  those  gentlemen  who  have  from 
time  to  time  sent  me  documents  and  publi- 
cations bearing  upon  the  subject  of  money, 
which  have  proved  very  valuable.  I  may 
mention  especially  a  series  of  reports  and 
documents  concerning  the  American  Mint 
and  currency  received  through  the  kindness 
of  the  Director  of  the  Mint,  and  of  Mr.  Wal- 
ker and  Mr.  E.  Dubois. 

I  am  much  indebted  to  Mr.  W.  H.  Brew~ 
er,  M.A.,  for  carefully  reading  the  whole  of 
the  proofs,  and  to  Professor  T.  E.  Qiffe 
Leslie,  Mr.  R.  H.  Inglis  Palgrave,  and  Mr. 
Frederick  Hendriks,  for  examining  particular 
portions. 


CHAPTER  I. 


BARTER 


Some  years  since,  Mademoiselle  Zeiie,  a 
singer  of  the  Theitre  Lyrique  at  Paris,  made 
a  professional  tour  round  the  world,  and  gave 
a  concert  in  the  Society  Islands.  In  ex- 
change for  an  air  from  Norma  and  a  fevr 
other  songs,  she  was  to  receive  a  third  part 
of  the  receipts.  When  counted,  her  share 
was  found  to  consist  of  three  pigs,  twenty- 
three  turkeys,  forty-four  chickens,  five 
thousand  cocoanuts,  besides  considerable 
quantities  of  bananas,  lemons  and  oranges. 
At  the  Halle  in  Paris,  as  the  prima  donna 
remarks  in  her  lively  letter,  printed  by  M. 
Wolowski,  this  amount  of  live  stock  and 
vegetables  might  have  brought  four  thousand 
francs,  which  would  have  been  good  remu- 
neration for  five  songs.  In  the  Society  Is- 
lands, however,  pieces  of  money  were  very 
scarce;  and  as  Mademoiselle  could  not  con- 
sume any  considerable  portion  of  the  re- 
ceipts  herself,  it  became  necessary  in  the 
meantime  to  feed  the  pigs  and  poultry  with 
the  fruit. 

When  Mr.  Wallace  was  traveling  in  the 
Malay  Archipelago,  he  seems  to  have  suf- 
fered rather  from  the  scarcity  than  the  super- 
abundance  of  provisions.  In  his  most  in- 
teresting account  of  his  travels,  he  tells  us 
that  in  some  of  the  islands,  where  there  was 
no  proper  currency,  he  could  not  procure 


MONEY  AND  Til  1C   MECHANISM  OF  EXCHANGE. 


[51]  3 


supplies  for  dinner  without  a  special  bargain, 
and  muck  chaffering  upon  each  occasion.  If 
the  vendor  of  fish  or  other  coveted  eatables 
did  not  meet  with  the  sort  of  exchange  de- 
sired, he  would  pass  on,  and  Mr.  Wallace 
and  his  party  had  to  go  without  their  din- 
ner. It  therefore  became  very  desirable  to 
keep  on  hand  a  supply  of  articles,  such  as 
knives,  pieces  of  cloth,  arrack,  or  sago  cakes, 
to  multiply  the  chance  that  one  or  other 
article  would  suit  the  itinerant  merchant. 

In  modern  civilized  society,  the  inconven- 
iences of  the  primitive  method  of  exchange 
are  wholly  unknown,  and  might  almost  seem 
to  be  imaginary.  Accustomed  from  our 
earliest  years  to  the  use  of  money,  we  are 
unconscious  of  the  inestimable  benefits 
which  it  confers  upon  us;  and  only  when  we 
recur  to  altogether  different  states  of  society 
can  we  realize  the  difficulties  which  arise  in 
its  absence.  It  is  even  surprising  to  be  re- 
minded that  barter  is  actually  the  sole  method 
of  commerce  among  many  uncivilized  races. 
There  is  something  absurdly  incongruous 
in  the  fact  that  a  joint-stock  company, 
called  "The  African  Barter  Company,  Lim- 
ited," exists  in  London,  which  carries  on  its 
transactions  upon  the  West  Coast  of  Africa, 
entirely  by  bartering  European  manufactures 
for  palm  oil,  gold  dust,  ivory,  cotton,  coffee, 
gum,  and  other  raw  produce. 

The  earliest  form  of  exchange  must  have 
consisted  in  giving  what  was  not  wanted  di- 
rectly for  that  which  was  wanted.  This  simple 
traffic  we  call  barter  or  truck t  the  French  troc, 
and  distinguish  it  from  sale  and  purchase  in 
which  one  of  the  articles  exchanged  is  in- 
tended to  be  held  only  for  a  short  time,  until 
it  is  parted  with  in  a  second  act  of  exchange. 
The  object  which  thus  temporarily  intervenes 
in  sale  and  purchase  is  money.  At  first  sight 
it  might  seem  that  the  use  of  money  only 
doubles  the  trouble,  by  making  two  exchanges 
necessary  where  one  was  sufficient;  but  a 
slight  analysis  of  the  difficulties  inherent  in 
simple  barter  shows  that  the  balance  of  trou- 
ble lies  quite  in  the  opposite  direction.  Only 
by  such  an  analysis  can  we  become  aware 
that  money  performs  not  merely  one  service 
to  us,  but  several  different  services,  each  in- 
dispensable. Modern  society  could  not  exist 
in  its  present  complex  form  without  the  means 
which  money  constitutes  of  valuing,  distrib- 
uting, and  contracting  for  commodities  of 
various  kinds. 

WANT  OF   COINCIDENCE  IN   BARTER. 

The  first  difficulty  in  barter  is  to  find  two 
persons  whose  disposable  possessions  mutu- 
ally suit  each  other's  wants.  There  may  be 
many  people  wanting,  and  many  possessing 
those  things  wanted;  but  to  allow  of  an  act 
of  barter,  there  must  be  a  double  coincidence, 
which  will  rarely  happen.  A  hunter  having 
returned  from  a  successful  chase  has  plenty 
of  game,  and  may  want  arms  and  ammunition 
to  renew  the  chase.  But  those  who  have 


arms  may  happen  to  be  well  supplied  with 
game,  so  that  no  direct  exchange  is  possible. 
In  civilized  society  the  owner  of  a  house  majf 
find  it  unsuitable,  and  may  have  his  eye  upon 
another  house  exactly  fitted  to  his  needs.  But 
even  if  the  owner  of  this  second  housf* 
wishes  to  part  with  it  at  all,  it  is  exceedingly 
unlikely  that  he  will  exactly  reciprocate  th«r 
feelings  of  the  first  owner,  and  wish  to  bar. 
ter  houses.  Sellers  and  purchasers  can  only 
be  made  to  fit  by  the  use  of  some  commodity, 
some  marchandise  bauale,  as  the  French  car*, 
it,  which  all  are  willing  to  receive  for  a  time, 
so  that  what  is  obtained  by  sale  in  one  case, 
may  be  used  in  purchase  in  another.  This 
common  commodity  is  called  a  medium  of 
exchange,  because  it  forms  a  third  or  imme- 
diate term  in  all  acts  of  commerce. 

Within  the  last  few  years  a  curious  attempt 
has  been  made  to  revive  the  practice  of  barter 
by  the  circulation^  of  advertisements.  Tht 
Exchange  and  Mart  is  a  newspaper  which 
devotes  itself  to  making  known  all  thft 
odd  property  which  its  advertisers  ar* 
willing  to  give  for  some  coveted  arti- 
cle. One  person  has  some  old  coins  and 
a  bicycle,  and  wants  to  barter  them  for  a 
good  concertina.  A  young  lady  desires  to. 
possess  "  Middlemarch,"  and  offers  a  variety 
of  old  songs,  of  which  she  has  become  tired. 
Judging  from  the  size  and  circulation  of  the 
paper,  and  the  way  in  which  its  scheme  has 
been  imitated  by  some  other  weekly  papers, 
we  must  assume  that  the  offers  are  sometimes 
accepted,  and  that  the  printing  press  can 
bring  about,  in  some  degree,  the  double 
coincidence  necessary  to  an  act  of  bartar. 

WANT   OF   A   MEASURE   OF   VALUE. 

A  second  difficulty  arises  in  barter.  At 
what  rate  is  any  exchange  to  be  made  ?  If  a 
certain  quantity  of  beef  be  given  for  a  cer- 
tain quantity  of  corn,  and  in  like  manner 
corn  be  exchanged  for  cheese,  and  cheese 
for  eggs,  and  eggs  for  flax,  and  so  on,  still 
the  question  will  arise — How  much  beef  for 
how  much  flax,  or  how  much  of  any  one 
commodity  for  a  given  quantity  of  another  ? 
In  a  state  of  barter  the  price- current  list 
would  be  a  most  complicated  document,  for 
each  commodity  would  have  to  be  quoted  in 
terms  of  every  other  commodity,  or  else 
complicated  rule-of-three  sums  would  become 
necessary.  Between  one  hundred  articles 
there  must  exist  no  less  than  four  thousand 
nine  hundred  and  fifty  possible  ratios  of  ex- 
change, and  all  these  ratios  must  be  care- 
fully adjusted  so  as  to  be  consistent  with 
each  other,  else  the  acute  trader  will  be  able 
to  profit  by  buying  from  some  and  selling  to 
others. 

All  such  trouble  is  avoided  if  any  on< 
commodity  be  chosen,  and  its  ratio  of  ex. 
change  with  each  other  commodity  bt. 
quoted.  Knowing  how  much  corn  is  to  be» 
bought  for  a  pound  of  silver,  and  also  how 
much  flax  for  the  same  quantity  of  silver,  wo 


1  [52] 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


Jearn  without  further  trouble  how  much  corn 
exchanges  for  so  much  flax.  The  chosen 
commodity  becomes  a  common  denominator 
or  common  measure  of  value,  in  terms 
of  which  we  estimate  the  values  of  all  other 
goods,  so  that  their  values  become  capable 
of  the  most  easy  comparison. 

WANT  OF  MEANS  OF  SUBDIVISION. 

A  third  but  it  may  be  a  minor  inconven- 
ience of  barter  arises  from  the  impossibility 
of  dividing  many  kinds  of  goods.  A  store 
of  corn,  a  bag  of  gold  dust,  a  carcase  of 
meat,  may  be  portioned  out,  and  more  or 
less  may  be  given  in  exchange  for  what  is 
wanted.  But  the  tailor,  as  we  are  reminded 
in  several  treatises  on  political  economy, 
may  have  a  coat  ready  to  exchange,  but  it 
much  exceeds  in  value  the  bread  which  he 
wishes  to  get  from  the  baker,  or  the  meat 
from  the  butcher.  He  cannot  cut  the  coat 
up  without  destroying  the  value  of  his  handi- 
work. It  is  obvious  that  he  needs  some 
medium  of  exchange,  into  which  he  can 
temporarily  convert  the  coat,  so  that  he  may 
give  a  part  of  its  value  for  bread,  and  other 
parts  for  meat,  fuel,  and  daily  necessaries, 
retaining  perhaps  a  portion  for  future  use. 
Further  illustration  is  needless  ;  for  it  is 
obvious  that  we  need  a  means  of  dividing 
and  distributing  value  according  to  our  va- 
rying requirements. 

In  the  present  day  barter  still  goes  on  in 
some  cases,  even  in  the  most  advanced  com- 
mercial countries,  but  only  when  its  incon- 
veniences are  not  experienced.  Domestic 
servants  receive  part  of  their  wages  in  board 
and  lodging  ;  the  farm  laborer  may  partially 
receive  payment  in  cider,  or  barley,  or  the 
use  of  a  piece  of  land.  It  has  always  been 
usual  for  the  miller  to  be  paid  by  a  portion 
of  the  corn  which  he  grinds.  The  trtick  or 
barter  system,  by  which  workmen  took  their 
wages  in  kind,  has  hardly  yet  been  extin- 
guished in  some  parts  of  England.  Pieces  of 
land  are  occasionally  exchanged  by  adjoining 
landowners  ;  but  all  these  are  comparatively 
trifling  cases.  In  almost  all  acts  of  ex- 
change money  now  intervenes  in  one  way  or 
other,  and  even  when  it  does  not  pass  from 
hand  to  hand,  it  serves  as  the  measure  by 
which  the  amounts  given  and  received  are 
estimated.  Commerce  begins  with  barter, 
and  in  a  certain  sense  it  returns  to  barter; 
but  the  last  form  of  barter,  as  we  shall  see, 
is  very  different  from  the  first  form.  By  far 
the  greater  part  of  commercial  payments  are 
made  at  the  present  day  in  England  appar- 
ently without  the  aid  of  metallic  money; 
but  they  are  readily  adjusted,  because  money 
acts  as  the  common  denominator,  and  what 
is  bought  in  one  direction  is  balanced  off 
Against  what  is  sold  in  another  direction. 


CHAPTER   II. 


EXCHANGE. 

Money  is  the  measure  and  standard  of 
value  and  the  medium  of  exchange,  yet  it  is 
not  necessary  that  I  should  enter  upon  more 
than  a  very  brief  discussion  concerning  the 
nature  of  value,  and  the  advantage  of  ex- 
change. Every  one  must  allow  that  the 
exchange  of  commodities  depends  upon  the 
obvious  principle  that  each  of  our  wants 
taken  separately  requires  a  limited  quantity  of 
some  article  to  produce  satisfaction.  Hence 
as  each  want  becomes  fully  satiated,  our  de- 
sire, as  Senior  so  well  remarked,  is  for  varie- 
ty, that  is,  for  the  satisfaction  of  some  other 
want.  The  man  who  is  supplied  daily  with 
three  pounds  of  bread,  will  not  desire  more 
bread;  but  he  will  have  a  strong  inclination 
for  beef,  and  tea,  and  alcohol.  If  he  happen 
to  meet  with  a  person  who  has  plenty  of  beef 
but  no  bread,  each  will  give  that  which  is 
less  desired  for  that  which  is  more  desired. 
Exchange  has  been  called  the  barter  of  the 
superfluous  for  the  necessary. 

It  is  impossible,  indeed,  to  decide  exactly 
how  much  bread,  or  beef,  or  tea,  or  how  many 
coats  and  hats  a  person  needs.  There  is  no 
precise  limit  to  our  desires,  and  we  can  only 
say,  that  as  we  have  a  larger  supply  of  a  sub- 
stance, the  urgency  of  our  need  for  more  is 
in  some  proportion  weakened.  A  cup  of 
water  in  the  desert,  or  upon  the  field  of  bat- 
tle, may  save  life,  and  become  infinitely  use- 
ful. Two  or  three  pints  per  day  for  each 
person  are  needful  for  drinking  and  cooking 
purposes.  A  gallon  or  two  per  day  are 
highly  requisite  for  cleanliness;  but  we  soon 
reach  a  point « at  which  further  supplies  of 
water  are  of  very  minor  importance.  A 
modern  town  population  is  found  to  be  satis- 
fied with  about  twenty-five  gallons  per  head 
per  day  for  all  purposes,  and  a  further  supply 
would  possess  little  utility.  Water,  indeed, 
may  be  the  reverse  of  useful,  as  in  the  case 
of  a  flood,  or  a  damp  house,  or  a  wet  mine. 

UTILITY   AND    VALUE   ARE   NOT^  INTRINSIC. 

It  is  only,  then,  when  supplied  in  moderate 
quantities,  and  at  the  right  time,  that  a  thing 
can  be  said  to  be  useful:  Utility  is  not  a 
quality  intrinsic  in  a  substance,  for  if  it  were, 
additional  quantities  of  the  same  substance 
would  always  be  desired,  however  much  we 
previously  possessed.  We  must  not  confuse 
the  usefulness  of  a  thing  with  the  physical 
qualities  upon  which  the  usefulness  depends. 
Utility  and  value  are  only  accidents  of  a  thing 
arising  from  the  fact  that  some  one  wants  it, 
and  the  degree  of  the  utility  and  the  amouut 
of  resulting  value  will  depend  upon  the  extent 
to  which  the  desire  for  it  has  been  previously 
gratified. 

Regarding  utility,  then,  as  constantly  vary- 
ing  in  degree,  and  as  variable  even  for  each 


MONEY   AND  THE   MKCIIANISM   OF   KXCHANCK. 


[53]  5 


different  portion  of  commodity,  it  is  not  dif- 
ficult to  see  that  we  exchange  those  parts  of 
our  stock  which  have  a  low  degree  of  utility 
to  us,  for  articles  which,  being  of  low  utility 
to  others,  are  much  desired  by  us.  This  ex- 
change is  continued  up  to  the  point  at  which 
the  next  portion  given  would  be  equally  use- 
ful to  us  with  that  received,  so  that  there  is 
no  gain  of  utility;  there  would  be  a  loss  in 
carrying  the  exchange  further.  Upon  these 
considerations  it  is  easy  to  construct  a  theory 
of  the  nature  of  exchange  and  value,  which 
has  been  explained  in  my  book,*  called  "The 
Theory  of  Political  Economy."  It  is  there 
shown  that  the  well-known  laws  of  supply 
and  demand  follow  from  this  view  of  utility, 
and  thus  yield  a  verification  of  the  theory. 
Since  the  publication  of  the  work  named,  M'. 
Leon  Walras,  the  ingenious  professor  of  polit- 
ical economy  at  Lausanne,  has  independent- 
ly arrived  at  the  same  theory  of  exchange,  f 
a  remarkable  confirmation  of  its  truth. 

VALUE    EXPRESSES    RATIO    OF    EXCHANGE. 

We  must  now  fix  our  attention  upon  the 
fact  that,  in  every  act  of  exchange,  a  definite 
quantity  of  one  substance  is  exchanged  for  a 
definite  quantity  of  another.  The  things 
bartered  may  be  most  various  in  character, 
and  may  be  variously  measured.  We  may 
give  a  weight  of  silver  for  a  length  of  rope, 
or  a  superficial  extent  of  carpet,  or  a  num- 
ber of  gallons  of  wine,  or  a  certain  horse- 
power of  force,  or  conveyance  over  a  certain 
distance.  The  quantities  to  be  measured 
may  be  expressed  in  terms  of  space,  time, 
mass,  force,  energy,  heat,  or  any  other  phy- 
sical units.  Yet  each  exchange  will  consist 
in  giving  so  many  units  of  one  thing  for  so 
many  units  of  another,  each  measured  in  its 
appropriate  way. 

Every  act  of  exchange  thus  presents  itself 
to  us  in  the  form  of  a  ratio  between  two  mem- 
bers. The  word  value  is  commonly  used, 
and  if,  at  current  rates,  one  ton  of  copper 
exchanges  for  ten  tons  of  bar  iron,  it  is  usual 
to  say  that  the  value  of  copper  is  ten  times 
that  of  the  iron,  weight  for  weight.  For  our 
purpose,  at  least,  this  use  of  the  word  value 
is  only  an  indirect  mode  of  expressing  a 
ratio.  When  we  say  that  gold  is  more  valu- 
able than  silver,  we  mean  that,  as  commonly 
exchanged,  the  weight  of  silver  exceeds  that 
of  the  gold  given  for  it.  If  the  value  of 
gold  rises  compared  with  that  of  silver,  then 
still  more  silver  is  given  for  the  same  quan- 
tity of  gold.  But  value  like  utility  is  no  in- 
trinsic quality  of  a  thing  ;  it  is  an  extrinsic 
accident  or  relation.  We  should  never  speak 
of  the  value  of  a  thing  at  all  without  having 
in  our  minds  the  other  thing  in  regard  to 
which  it  is  valued.  The  very  same  sub- 
stance may  rise  and  fall  in  value  at  the  same 

*  **  The  Theory  of  Political  Economy,"  8vo.  1871. 
(Macraillan). 

t  Walras,    Elements    d' Economic    politique    pure. 
--"— «-^e,  Paris.     (Oaillaumin),  1874. 


time.  If,  in  exchange  for  a  given  weight  of 
gold,  I  can  get  more  silver,  but  less  copper, 
than  I  used  to  do,  the  value  of  gold  has 
risen  with  respect  to  silver,  but  fallen  with 
respect  to  copper.  It  is  evident  that  an  in- 
trinsic property  of  a  thing  cannot  both  in- 
crease and  decrease  at  the  same  time;  there- 
fore value  must  be  a  mere  relation  or  accident 
of  a  thing  as  regards  other  things  and  tho 
persons  needing  them. 


CHAPTER  III. 


THE   FUNCTIONS   OF   MONEY. 

We  have  seen  that  three  inconveniences 
attach  to  the  practice  of  simple  barter,  name- 
ly, the'improbability  of  coincidence  between 
persons  wanting  and  persons  possessing;  the 
complexity  of  exchanges,  which  are  not 
made  in  terms  of  one  single  substance;  and 
the  need  of  some  means  of  dividing  and  dis- 
tributing valuable  articles.  Money  remedies 
these  inconveniences,  and  thereby  performs 
two  distinct  functions  of  high  importance, 
acting  as — 

1)  A  medium  of  exchange. 

2)  A  common  measure  of  value. 

In  its  first  form  money  is  simply  any  com- 
modity esteemed  by  all  persons,  any  article 
of  food,  clothing,  or  ornament  uhich  any 
person  will  readily  receive,  and  which,  there- 
fore, every  person  desires  to  have  by  him  in 
greater  or  less  quantity,  in  order  that  he  may 
have  the  means  of  procuring  necessaries  of 
life  at  any  time.  Although  many  commod- 
ities may  be  capable  of  performing  this 
function  of  a  medium  more  or  less  perfectly, 
some  one  article  will  usually  be  selected,  as 
money  par  excellence,  by  custom  or  the  force 
of  circumstances.  This  article  will  then  be- 
gin to  be  used  as  a  measure  of  value.  Being 
accustomed  to  exchange  things  frequently  for 
sums  of  money,  people  learn  the  value  of 
other  articles  in  terms  of  money,  so  that  all 
exchanges  will  most  readily  be  calculated  and 
adjusted  by  comparison  of  the  money  values 
of  the  things  exchanged. 

A   STANDARD   OF   VALUE. 

A  third  function  of  money  soon  develops 
itself.  Commerce  cannot  advance  far  before 
people  begin  to  borrow  and  lend,  and  debts 
of  various  origin  are  contracted.  It  is  in 
some  cases  usual,  indeed,  to  restore  the  very 
same  article  which  was  borrowed,  and  in  al- 
most every  case  it  would  be  possible  to  pay 
back  in  the  same  kind  of  commodity.  If 
corn  be  borrowed,  corn  might  be  paid  back, 
with  interest  in  corn;  but  the  lender  will 
often  not  wish  to  have  things  returned  to  him 
at  an  uncertain  time,  when  he  does  not  much 
need  them,  or  when  their  value  is  unusually 
low.  A  borrower,  too,  may  need  several  dif- 
ferent kinds  of  articles,  which  he  is  not  likely 


6  [54] 


MONEY  AND  THE   MECHANISM   OF   r.XCHANGE. 


to  obtain  from  one  person;  hence  arises  the 
convenience  of  borrowing  and  lending  in  one 
generally  recognized  commodity,  of  which 
the  value  varies  little.  EvexjLpers^mnaking 
a  contract  by  which  he  will  receive  something 
at  a  future  day,  will  prefer  to  secure  the  re- 
ceipt of  a  commodity  likely  to  be  as  valuable 
then  as  now.  This  commodity  will  usually 
be  the  current  money,  and  it  will  thus  come 
to  perform  the  f  unction  of  a  standard ofvahie. 
We  must  not  suppose  that  the  substance  serv- 
ing as  a  standard  of  value  is  really  invaria- 
ble in  value,  but  merely  that  it  is  chosen  as 
that  measure  by  which  the  value  of  future 
payments  is  to  be  regulated.  Bearing  in 
mind  that  value  is  only  the  ratio  of  quantities 
exchanged,  it  is  certain  that  no  substance 
permanently  bears  exactly  the  same  value 
relatively  to  another  commodity;  but  it  will, 
of  course,  be  desirable  to  select  as  the  stand- 
ard of  value  that  which  appears  likely  to  con- 
tinue to  exchange  for  many  other  commod- 
ities in  nearly  unchanged  ratios. 

A  STORE  OF  VALUE. 

It  is  worthy  of  inquiry  whether  money 
does  not  also  serve  a  fourth  distinct  purpose 
— that  of  embodying  value  in  a  convenient 
form  for  conveyance  to  distant  places. 
Money,  when  acting  as  a  medium  of  ex- 
change, circulates  backward  and  forward 
near  the  same  spot,  and  may  sometimes 
return  to  the  same  hands  again  and  again. 
It  subdivides  and  distributes  property,  and 
lubricates  the  action  of  exchange.  But  at 
times  a  person  needs  to  condense  his  property 
into  the  smallest  compass,  so  that  he  may 
hoard  it  away  for  a  time,  or  carry  it  with 
him  on  a  long  journey,  or  transmit  it  to  a 
friend  in  a  distant  country.  Something 
which  is  very  valuable,  although  of  little 
bulk  and  weight,  and  which  will  be  recog- 
nized as  very  valuable  in  every  part  of  the 
world,  is  necessary  for  this  purpose.  The 
current  money  of  a  country  is  perhaps  more 
likely  to  fulfill  these  conditions  than  anything 
else,  although  diamonds  and  other  precious 
stones,  and  articles  of  exceptional  beauty 
and  rarity,  might  occasionally  be  employed. 

The  use  of  esteemed  articles  as  a  store  or 
medium  for  conveying  value  may  in  some 
cases  precede  their  employment  as  currency. 
Mr.  Gladstone  states  that  in  the  Homeric 
poems  gold  is  mentioned  as  being  hoarded 
and  treasured  up.  and  as  being  occasionally 
used  in  fhe  payment  of  services,  before  it 
became  the  common  measure  of  value,  oxen 
being  then  used  for  the  latter  purpose.  His- 
torically speaking,  such  a  generally  esteemed 
substance  as  gold  seems  to  have  served, 
firstly,  as  a  commodity  valuable  for  orna- 
mental purposes  ;  secondly,  as  stored  wealth  ; 
thirdly,  as  a  medium  of  exchange  ;  and,  last- 
ly, as  a  measure  of  value. 

SEPARATION  OF  FUNCTIONS. 

It  is  in  the  highest  degree  important  that 


the  reader  should  discriminate  carefullj  and 
constantly  between  the  four  functions  which 
money  fulfills,  at  least  in  modern  societies. 
We  are  so  accustomed  to  use  the  one  same 
substance  in  ail  the  four  different  ways,  that 
they  tend  to  become  confused  together  in 
thought.  We  come  to  regard  as  almost  nec- 
essary that  union  of  functions  which  is,  at 
the  most,  a  matter  of  convenience,  and  may 
not  always  be  desirable.  We  might  certain- 
ly employ  one  substance  as  a  medium  of 
exchange,  a  second  as  a  measure  of  value, 
a  third  as  a  standard  of  value,  and 
a  fourth  as  a  store  of  value.  In  buying 
and  selling  we  might  transfer  portions  of 
gold  ;  in  expressing  and  calculating  prices 
we  might  speak  in  terms  of  silver  ;  when  we 
wanted  to  make  long  leases  we  might  define 
the  rent  in  terms  of  wheat,  and  -when  we 
wished  to  carry  our  riches  away  we  might 
condense  it  into  the  form  of  precious  stones. 
This  use  of  different  commodities  for  each 
of  the  functions  of  money  has  in  fact  been 
partially  carried  out.  In  Queen  Elizabeth's 
reign  silver  was  the  common  measure  of 
value  ;  gold  was  employed  in  large  payments 
in  quantities  depending  upon  its  current 
value  in  silver,  while  corn  was  required  by 
the  Act  i8th  Elizabeth,  c.  VI.  (1576),  to  be 
the  standard  of  value  in  drawing  the  leases 
of  certain  college  lands. 

There  is  evident  convenience  in  selecting, 
if  possible,  one  single  substance  which  can 
serve  all  the  functions  of  money.  It  will 
save  trouble  if  we  can  pay  in  the  same  money 
in  which  the  prices  of  things  are  calculated. 
As  few  people  have  the  time  or  patience  to 
investigate  closely  the  history  of  prices,  they 
will  probably  assume  that  the  money  in 
which  they  make  all  minor  and  temporary 
bargains,  is  also  the  best  standard  in  which 
to  register  debts  and  contracts  extending 
over  many  years.  A  great  mass  of  payments 
too  are  invariably  fixed  by  law,  such  as  tolls, 
fees,  and  tariffs  of  charges  ;  many  other  pay- 
ments are  fixed  by  custom.  Accordingly, 
even  if  the  medium  of  exchange  varied  con- 
siderably in  value,  people  would  go  on  mak- 
ing their  payments  in  terms  of  it,  as  if  there 
had  been  no  variation,  some  gaining  at  the 
expense  of  others. 

One  of  our  chief  tasks  in  this  book  will  be 
to  consider  the  various  materials  \vhich  have 
been  employed  as  money,  or  have  been,  or 
may  be,  suggested  for  the  purpose.  It  must 
be  our  endeavor,  if  possible,  to  discover  some 
substance  which  will  in  the  highest  degree 
combine  the  characters  requisite  for  all  the 
different  functions  of  money,  but  we  must 
bear  in  mind  that  a  partition  of  these  func- 
tions among  different  substances  is  practi- 
cable. We  will  first  proceed  to  a  brief  review 
of  the  very  various  ways  in  which  the  need 
of  currency  has  been  supplied  from  the  ear- 
liest ages,  and  we  will  afterward  analyze  the 
physical  qualities  and  circumstances  which 
render  the  substances  employed  more  o«  less 


111.    MKC1IAM.-.M    OF   1-:XCHA> 


[55]  7 


suited  to  the  purpose  to  which  they  were 
applied.  We  may  thus  arrive  at  some  decis- 
ion as  to  the  exact  nature  of  the  commodity 
which  is  best  adapted  to  meet  our  needs  in 
the  present  day. 


CIIAI'TF.R  IV. 


EARLY    HISTORY    OK    MONEY. 


Living  in  civilized  communities,  and  ac- 
customed to  the  use  of  coined  metallic  mon- 
ey, we  learn  to  identify  money  with  gold  and 
silver ;  hence  spring  hurtful  and  insidious 
fallacies.  It  is  always  useful,  therefore,  to 
be  reminded  of  the  truth,  so  well  stated  by 
Turgot,  that  every  kind  of  merchandise  has 
the  two  properties  of  measuring  value  and 
transferring  value.  It  is  entirely  a  question 
of  degree  what  commodities  will  in  any  given 
state  of  society  form  the  most  convenient 
currency,  and  this  truth  will  be  best  impressed 
upon  us  by  a  brief  consideration  of  the  very 
numerous  things  which  have  at  one  time  or 
other  been  employed  as  money.  Though 
there  are  many  numismatists  and  many  polit- 
ical economists,  the  natural  history  of  money 
is  almost  a  virgin  subject,  upon  which  I 
should  like  to  dilate  ;  but  the  narrow  limits 
of  my  space  forbid  me  from  attempting  more 
than  a  brief  sketch  of  the  many  interesting 
facts  which  may  be  collected. 

CURRENCY    IN   THE   HUNTING    STATE. 

Perhaps  the  most  rudimentary  state  of  in- 
dustry is  that  in  which  subsistence  is  gained 
by  hunting  wild  animals.  The  proceeds  of 
the  chase  would,  in  such  a  state,  be  the  prop- 
erty of  most  generally  recognized  value.  The 
meat  of  the  animals  captured  would,  indeed, 
be  too  perishable  in  nature  to  be  hoarded  or 
often  exchanged  ;  but  it  is  otherwise  with  the 
skins,  which,  being  preserved  and  valued  for 
clothing,  became  one  of  the  earliest  materi- 
als of  currency.  Accordingly,  there  is  abun- 
dant evidence  that  furs  or  skins  were  em- 
ployed as  money  in  many  ancient  nations. 
They  serve  this  purpose  to  the  present  day 
in  some  parts  of  the  world. 

In  the  book  of  Job  (ii.  4)  we  read,  "  Skin 
for  skin,  yea,  all  that  a  man  hath  will  he  give 
for  his  life  ;  "  a  statement  clearly  implying 
that  skins  were  taken  as  the  representative 
of  value  among  the  ancient  Oriental  nations. 
Etymological  research  shows  that  the  same 
may  be  said  of  the  northern  nations  from  the 
earliest  times.  In  the  Esthonian  language 
the  word  rdha  generally  signifies  money,  but 
its  equivalent  in  the  kindred  Lappish  tongue 
has  not  yet  altogether  lost  the  original  mean 
ing  of  skin  or  fur.  Leather  money  is  said 
to  have  circulated  in  Russia  as  late  as  the 
reign  of  Peter  the  Great,  and  it  is  worthy  of 
notice,  that  classical  writers  have  recorded 
traditions  to  the  effect  that  the  earliest  cur- 


rency used  at  Rome,  Lacedocmon,  and  Car- 
thage, was  formed  of  leather. 

We  need  not  go  back,  however,  to  such 
early  times  to  study  the  use  of  rude  curren- 
cies. In  the  traffic  of  the  Hudson  Bay  Com- 
pany with  the  North  American  Indians,  furs, 
in  spite  of  their  differences  of  quality  and 
size,  long  formed  the  medium  of  exchange. 
It  is  very  instructive,  and  corroborative  of  the 
previous  evidence  to  find  that,  even  after  the 
use  of  coin  had  become  common  among  the 
Indians  the  skin  was  still  commonly  used  as 
the  money  of  account.  Thus  Whymper  says,* 
''a  gun,  nominally  worth  about  forty  shil- 
lings, brought  twenty  'skins.'  This  term  is 
the  old  one  employed  by  the  company.  One 
skin  (beaver)  is  supposed  to  be  worth  two 
shillings,  and  it  represents  two  marten,  and 
so  on.  You  heard  agreat  deal  about  'skins' 
at  Fort  Yukon,  as  the  workmen  were  also 
charged  for  clothing,  etc.,  in  this  way." 

CURRENCY  IN  THE  PASTORAL  STATE. 

In  the  next  higher  stage  of  civilization,  the 
pastoral  state,  sheep  and  cattle  naturally  form 
the  most  valuable  and  negotiable  kind  of 
property.  They  are  easily  transferable,  con- 
vey themselves  about,  and  can  be  kept  for 
many  years,  so  that  they  readily  perform 
some  of  the  functions  of  money. 

We  have  abundance  of  evidence,  tradi- 
tional, written,  and  etymological,  to  show 
i  this.  In  the  Homeric  poems  oxen  are  dis- 
tinctly and  repeatedly  mentioned  as  the  com- 
modity in  terms  of  which  other  objects  are 
valued.  The  arms  of  Dicmed  are  stated  to 
be  worth  nine  oxen,  and  are  compared  with 
those  of  Glaucos,  worth  one  hundred.  The  tri- 
pod, the  first  prize  for  wrestlers  in  the  twenty- 
third  Iliad,  was  valued  at  twelve  oxen,  and  a 
woman  captive,  skilled  in  industry,  at  four.f 
It  is  peculiarly  interesting  to  find  oxen  thus 
used  as  the  common  measure  of  value,  because 
from  other  passages  \\.  is  probable,  as  already 
mentioned,  that  the  precious  metals,  though 
as  yet  uncoined,  were  used  as  a  store  of  value, 
and  occasionally  as  a  medium  of  exchange.  The 
several  functions  of  money  were  thus  clearly 
performed  by  different  commodities  at  this 
early  period. 

In  several  languages  the  name  for  money- 
is  identical  with  that  of  some  kind  of  cattle 
or  domesticated  animal.  It  is  generally  al- 
lowed that  pecunia,  the  Latin  word  for 
money,  is  derived  from  pecus,  cattle.  From 
the  Agamemnon  of  /Eschylus  we  learn  that 
the  figure  of  an  ox  was  the  sign  first  im- 
pressed upon  coins, and  the  same  is  said  to  have 
been  the  case  with  the  earliest  issues  of  the 
Roman  As.  Numismatic  researches  fail  to 
bear  out  these  traditions,  which  were  proba- 
bly invented  to  explain  the  connection  be- 
tween the  name  of  the  coin  and  the  animaL 


*  "  Travels  in  Alaska,"  etc.,  by  F.  Whymper,  page 
25  ,  ^ 
t  Gladstone,  "  Juventus  Mundi,"  page  534. 


*  [56] 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


A  corresponding  connection  between  these 
notions  may  be  detected  in  much  more  mod- 
ern languages.  Our  common  expression  for 
the  payment  of  a  sum  of  money  is/*?,  which 
is  nothing  but  the  Anglo-Saxon  feoh,  mean- 
ing alike  money  and  cattle,  a  word  cognate 
with  the  German  vieh,  which  still  bears  only 
the  original  meaning  of  cattle.  As  I  am  in- 
formed by  my  friend,  Professor  Theodores, 
the  same  connection  of  ideas  is  manifested 
in  the  Greek  word  for  property,  ktema, 
which  means  alike  possession,  flock,  or  cat- 
tle, and  is  referred  by  Grimm  to  an  original 
verb  keto  or  ketuo,  to  feed  cattle.  It  is 
even  supposed  by  Grimm  that  the  same  root 
reappears  in  the  Teutonic  and  Scandinavian 
languages,  in  the  Gothic,  skatts,  the  modern 
High  German,  schatz,  the  Anglo-Saxon,  scat, 
or  sceat,  the  ancient  Norsk  skat,  all  meaning 
wealth,  property,  treasure,  tax,  or  tribute, 
especially  in  the  shape  of  cattle.  This  theory 


is    confirmed   by   the 
equivalent,   skct,   has 


fact  that   the  Frisian 
retained   the   original 


meaning  of  cattle  to  the  present  day.  In  the 
Norsk,  Anglo-Saxon,  and  English,  scat  or 
scot  has  been  specialized  to  denote  tax  or 
tribute. 

In  the  ancient  German  codes  of  law,  fines 
and  penalties  are  actually  defined  in  terms  of 
live-stock.  In  the  Zend  Avesta,  as  Professor 
Theodores  further  informs  me,  the  scale  of 
rewards  to  be  paid  to  physicians  is  carefully 
stated,  and  in  every  case  the  fee  consists  in 
some  sort  of  cattle.  The  fifth  and  sixth 
lectures  in  Sir  H.  S.  Maine's  most  interesting 


made  of  the  ends  of  black  and  white  shells, 
rubbed  down  and  polished,  and  then  strung 
into  belts  or  necklaces,  which  were  valued  ac- 
cording to  their  length,  and  also  according 
to  their  color  and  luster,  a  foot  of  black  peag 
being  worth  two  feet  of  white  peag.  If  was 
so  well  established  as  currency  among  the 
natives  that  the  Court  of  Massachusetts  ord- 
ered in  1649,  tnat  it  should  be  received  in 
the  payment  ot  debts  among  settlers  to  the 
amount  of  forty  shillings.  It  is  curious  to 
learn,  too,  that  just  as  European  misers 
hoard  up  gold  and  silver  coins,  the  richer 
Indian  chiefs  secrete  piles  of  wampum  beads, 
having  no  better  means  of  investing  their 
superfluous  wealth. 

Exactly  analagous  to  this  North  American 
currency,  is  that  of  the  cowry  shells,  which, 
under  one  name  or  another — chamgos,  zim- 
bis,  bouges,  porcelanes,  etc. — have  long  been 
used  in  the  East  Indies  as  small  money.  In 
British  India,  Siam,  the  West  Coast  of 
Africa,  and  elsewhere  on  the  tropical  coasts, 
they  are  still  used  as  small  change,  being  col- 
lected on  the  shores  of  the  Maldive  and  Lac- 
cadive  Islands,  and  exported  for  the  purpose. 
Their  value  varies  somewhat,  according  to 
the  abundance  of  the  yield,  but  in  India  the 
current  rate  used  to  be  about  5,000  shells  for 
one  rupee,  at  which  rate  each  shell  is  worth 
about  the  two-hundredth  part  of  a  penny. 
Among  our  interesting  fellow-subjects,  the 
Fijians,  whale's  teeth  served  in  the  place  of 
cowries,  and  white  teeth  were  exchanged  for 
red  teeth  somewhat  in  the  ratio  of  shillings 


work  on  "The  Early  History  of  Institutions,"  I  to  sovereigns. 

are  full  of  curious  information  showing  the  I      Among  other   articles   of  ornament  or  of 

importance  of  live-stock  in  a  primitive  state    special  value  used  as  currency,  maybe  men- 

of  society.     Being  counted  by  the  head,  the    tioned  yellow  amber,  engraved  stones,  such 

kine  was  called  capitate,  whence  the  econom-    as  the  Egyptian  scarabcei,  and  tusks  of  ivory. 

ical  term  capital,  the  law  term  chattel,  and 

our  common  name  cattle. 

In  countries  where  slaves  form  one  of  the 
most  common  and  valuable  possessions,  it  is 


quite  natural  that  they  should  serve  as  the 
medium  of  exchange  like  cattle.  Pausanias 
mentions  their  use  in  this  way,  and  in  Cen- 
tral Africa  and  some  other  places  where  slav- 
ery still  flourishes,  they  are  the  medium  of 
exchange  along  with  cattle  and  ivory  tusks. 
According  to  Earl's  account  of  New  Guinea, 
there  is  in  that  island  a  large  traffic  in  slaves, 
and  a  slave  forms  the  unit  of  value.  Even 
in  England  slaves  are  believed  to  have  been 
exchanged  at  one  time  in  the  manner  of 
money. 

ARTICLES  OF  ORNAMENT  AS  CURRENCY. 

A  passion  for  personal  adornment  is  one 
of  the  most  primitive  and  powerful  instincts 
of  the  human  race,  and  as  articles  used  for 
such  purposes  would  be  durable,  universally 
esteemed, 'and  easily  transferable,  it  is  natu- 
ral that  they  should  be  circulated  as  money. 
The  wampumpeag  of  the  North  American 
Indians  is  a  case  in  point,  as  it  certainly 
served  as  jewelry.  It  consisted  of  beads 


CURRENCY    IN   THE   AGRICULTURAL   STATE. 

Many  vegetable   productions   are   at  least 
as  weil  suited  for  circulation  as  some  of  the 


articles  which  have  been  mentioned.  It  is 
not  .  surprising  to  find,  then,  that  among  a 
people  supporting  themselves  by  agriculture, 
the  more  durable  products  were  thus  used. 
Corn  has  been  the  medium  of  exchange  in 
remote  parts  of  Europe  from  the  time  of  the 
ancient  Greeks  to  the  present  day.  In  Nor- 
way corn  is  even  deposited  in  banks,  and 
lent  and  borrowed.  What  wheat,  barley, 
and  oats  are  to  Europe,  such  is  maize  in 
parts  of  Central  America,  especially  Mex- 
ico, where  it  formerly  circulated.  In  many 
of  the  countries  surrounding  the  Mediter- 
ranean, olive  oil  is  one  of  the  commonest 
articles  of  produce  and  consumption  ;  being, 
moreover,  pretty  uniform  in  quality,  durable, 
and  easily  divisible,  it  has  long  served  as 
currency  in  the  Ionian  Islands,  Mytilene, 
some  towns  of  Asia  Minor,  and  elsewhere  in 
the  Levant, 

Just  as  cowries  circulate  in  the  East  Indies, 
so  cacao  nuts,  in  Central  America  and  Yu- 
catan, form  a  perfectly  recognized  and  prob- 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


|/>7J  3 


ably  an  ancient  fractional  money.  Trav- 
el*rs  have  published  many  distinct  state- 
ments as  to  their  value,  but  it  is  impossible 
to  reconcile  these  statements  without  sup- 
posing great  changes  of  value  either  in  the 
nuts  or  in  the  coins  with  which  they  are  com- 
pared. In  1521,  at  Caracas,  about  thirty 
cacao  nuts  were  worth  one  penny  English, 
whereas  recently  ten  beans  would  go  to  a 
penny,  according  to  Squier's  statements.  In 
the  European  countries,  where  almonds  are 
commonly  grown,  they  have  circulated  to 
some  extent  like  the  cacao  nuts,  but  are  vari- 
able in  value  according  to  the  success  of  the 
harvest. 

It  is  not  only,  however,  as  a  minor   cur- 
rency   that    vegetable    products    have    been 
used   in    modern    times.     In   the    American 
settlements  and  the  West  India  Islands,  in 
former  days,  specie   used    to   become  incon- 
veniently scarce,  and  the  legislators  fell  back 
upon  the  device  of  obliging  creditors   to  re- 
ceive payment  in  produce  at  stated  rates.     In 
1618,  the    Governor   of    the    Plantations  of  ! 
Virginia  ordered  that  tobacco  should  be  re-  ; 
ceived  at  the  rate  of  three  shillings  for  the  j 
pound   weight,   under  the   penalty   of  three  | 
years'  hard  labor.     We  are  told  that,  when 
the     Virginia    Company    imported     young  i 
women    as  wives    for  the  settlers,  the  price  j 
per  head    was   one   hundred    pounds  of  to- 
bacco,  subsequently  raised  to  one  hundred 
and  fifty.     As  late  as  1732,  the  legislature  of 
.nd    made    tobacco   and    Indian    corn 
legal  tenders  ;  and  in  1641  there  were  similar  [ 
laws  concerning  corn  in  Massachusetts.   The  I 
governments   of  some    of    the    West    India  j 
Islands  seem  to  have  made  attempts  to  imi- 
tate these  peculiar  currency  laws,  and  it  was  ! 
provided  that    the  successful   plaintiff   in   a  ; 
lawsuit  should   be  obliged  to  accept  various 
kinds  of  raw  produce,  such  as  sugar,  rum,  j 
molasses,  ginger,  indigo,  or  tobacco.*    Such  j 
endeavors  to  establish  a  kind  of  multiple  cur-  I 
rency  will  be  found  to  possess  considerable 
interest  for  us  in  a  later  chapter. 

The  perishable  nature  of  most  kinds  of 
animal  food  prevents  them  from  being  much 
used  as  money  ;  but  eggs  are  said  to  have 
circulated  in  the  Alpine  villages  of  Switzer- 
land, and  dried  codfish  have  certainly  acted 
as  currency  in  the  colony  of  Newfoundland. 


somewhat  similar  pieces  circulated  in  Abys- 
sinia, the  Soulou  Archipelago,  Sumatra, 
Mexico,  Peru,  Siberia,  and  among  the  Ved- 
dahs.  It  is  less  easy  to  understand  the  ori- 
gin of  the  curious  straw  money  which  circu- 
lated until  1694  in  the  Portuguese  possessions 
in  Angola,  and  which  consisted  of  small 
mats,  called  libongos,  woven  out  of  rice 
straw,  and  worth  about  one  and  a-half  pennies 
each.  These  mats  must  have  had,  at  least 
originally,  some  purpose  apart  from  their  use 
as  currency,  and  were  perhaps  analogous  to 
the  fine  woven  mats  so  much  valued  by  the 
Samoans,  and  also  treated  by  them  as  a  me- 
dium of  exchange. 

Salt  has  been  circulated  not  only  in  Abys- 
sinia, but  in  Sumatra,  Mexico,  and  elsewhere. 
Cubes  of  benzoin  gum  or  beeswax  in  Suma- 
tra, red  feathers  in  the  Islands  of  the  Pacific 
Ocean,  cubes  of  tea  in  Tartary,  iron  shovels 
or  hoes  among  the  Malagasy,  are  other  pecu- 
liar forms  of  currency.  The  remarks  of 
Adam  Smith  concerning  the  use  of  hand- 
made nails  as  money  in  some  Scotch  villages 
will  be  remembered  by  many  readers,  and 
need  not  be  repeated.  M.  Chevalier  has 
adduced  an  exactly  corresponding  case  from 
one  of  the  French  coalfields. 

Were  space  available  it  would  be  interest- 
ing to  discuss  the  not  improbable  suggestion 
of  Boucher  de  Perthes,  that,  perhaps,  after 
all,  the  finely  worked  stone  implements  now 
so  frequently  discovered  were  among  the 
earliest  mediums  of  exchange.  Some  of 
them  are  certainly  made  of  jade,  nephrite,  or 
other  hard  stones,  only  found  in  distant 
countries,  so  that  an  active  traffic  in  such 
implements  must  have  existed  in  times  of 
which  we  have  no  records  whatever. 

There  are  some  obscure  allusions  in  classi- 
cal authors  to  a  wooden  money  circulating 
among  the  Byzantines,  and  to  a  wooden 
talent  used  at  Antioch  and  Alexandria,  but 
in  the  absence  of  fuller  information  as  to 
their  nature,  it  is  impossible  to  do  more  than 
mention  them. 


CHAPTER  V, 

QUALITIES  OF  THE  MATERIAL  OF  MONEY. 


MANUFACTURED    AND    MISCELLANEOUS  ARTI- 
CLES  AS    CURRENCY. 

The  enumeration  of  articles  which  have 
served  as  money  may  already  seem  long 
enough  for  the  purposes  in  view.  I  will, 
therefore,  only  add  briefly  that  a  great  num- 
ber of  manufactured  commodities  have  been 
used  as  a  medium  of  exchange  in  various 
times  and  places.  Such  are  the  pieces  of 
cotton  cloth,  called  Guinea  pieces,  used  for 
traffic  upon  the  banks  of  the  Senegal,  or  the 


*  See  a  scarce  tract,  entitled  "  Two  Letters  to  Mr. 
Wood  on  the  Coin  and  Currency  in  the  Leeward 
lilamds,"  p.  34.  London,  1740. 


Many  recent  writer!?  such  as  Huskissou, 
MacCulloch,  James  Mill,  Gamier,  Chevalier, 
and  Walras,  have  satisfactorily  described  the 
qualities  which  should  be  possessed  by  the 
material  of  money.  Earlier  writers  seem, 
however,  to  have  understood  the  subject 
almost  as  well.  Harris  explained  these  qual- 
ities with  remarkable  clearness  in  his  "Essay 
upon  Money  and  Coins,"  published  in  1757,  a 
work  which  appeared  before  the  ' '  Wealth  of 
Nations,"  yet  gave  an  exposition  of  the  prin- 
ciples of  money  which  can  hardly  be  im- 
proved at  the  present  day.  Eigkty  years 
; before,  however,  Rice  Vaughan,  in  his  excel- 


10  [58 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


lent  little  "Treatise  of  Money,"  had  written 
a  brief  but  satisfactory  statement  of  the 
qualities  requisite  in  money.  We  even  find 
that  William  Stafford,  the  author  of  that  re- 
markable dialogue  of  the  Elizabethan  age 
(1581),  called  "A  Brief  Conceipte  of  Eng- 
lish Policy,"  showed  perfect  insight  into  the 
subject.  Of  all  writers,  M.  Chevalier,  how- 
ever, probably  gives  the  most  accurate  and 
full  account  of  the  properties  which  money 
should  possess,  and  I  shall  in  many  points 
follow  his  views. 

The  prevailing  defect  in  the  treatment  of 
the  subject  is  the  failure  to  observe  that 
money  requires  different  properties  as  regards 
different  functions.  To  decide  upon  the 
best  material  for  money  is  thus  a  problem  of 
great  complexity,  because  we  must  take  into 
account  at  once  the  relative  importance  of 
the  several  functions  of  money,  the  degree  in 
which  money  is  employed  for  each  function, 
and  the  importance  of  each  of  the  physical 
qualities  of  the  substance  with  respect  to 
each  function.  In  a  simple  state  of  industry 
money  is  chiefly  required  to  pass  about 
between  buyers  and  sellers.  It  should,  then, 
be  conveniently  portable,  divisible  into  pieces 
of  various  size,  so  that  any  sum  may  readily 
be  made  up,  and  easily  distinguishable  by 
its  appearance,  or  by  the  design  impressed 
upoff.  it.  When  money,  however,  comes  to 
serve,  as  it  will  at  some  future  time,  almost 
exclusively  as  a  measure  and  standard  of 
value,  the  system  of.  exchange  being  one  of 
perfected  barter,  such  properties  become  a 
matter  of  comparative  indifference,  and  sta- 
bility of  value,  joined  perhaps  to  portability, 
is  the  most  important  quality.  Before  ven- 
turing, however,  to  discuss  such  complex 
questions,  we  must  proceed  to  a  preliminary 
discussion  of  the  properties  in  question, 
which  may  thus  perhaps  be  enumerated  in 
the  order  of  their  importance  : — 

1.  Utility  and  value.   5.  Divisibility. 

2.  Portability.  6.  Stability  of  value. 

3.  Indestructibility.     7.  Cognizability. 

4.  Homogeneity. 

I. — UTILITY   AND    VALUE. 

Since  mcney  has  to  be  exchanged  for  val- 
uable goods,  it  should  itself  possess  value, 
and  it  must  therefore  have  utility  as  the  basis 
of  value.  Money,  when  once  in  full  cur- 
rency, is  only  received  in  order  to  be  passed 
on,  so  that  if  all  people  could  be  induced  to 
take  worthless  bits  of  material  at  a  fixed  rate 
of  valuation,  it  might  seem  that  money  does 
not  really  require  to  have  substantial  value. 
Something  like  this  does  frequently  happen 
in  the  history  of  currencies,  and  apparently 
valueless  shells,  bits  of  leather,  or  scraps  of 
paper,  are  actually  received  in  exchange 
for  costly  commodities.  This  strange  phe- 
nomenon is,  however,  in  most  cases  capable 
of  easy  explanation,  and  if  we  were  ac- 
quainted with  the  history  of  every  kind  of 
money  the  like  explanation  would  no  doubt 


be  possible  in  other  cases.  The  essential 
point  is  that  people  should  be  induced  to  re- 
ceive money,  and  pass  it  on  freely  at  steady 
ratios  of  exchange  for  other  objects ;  but 
there  must  always  be  some  sufficient  reason 
first  inducing  people  to  accept  the  money. 
The  force  of  habit,  convention,  or  legal 
enactment  may  do  much  to  maintain  money 
in  circulation  when  once  it  is  afloat,  but  it  is 
doubtful  whether  the  most  powerful  govern- 
ment could  oblige  its  subjects  to  accept  and 
circulate  as  money  a  worthless  substance 
which  they  had  no  other  motive  for  receiving. 

Certainly,  in  the  early  stages  of  society, 
the  use  of  money  was  not  based  on  legal 
regulations,  so  that  the  utility  of  the  sub- 
stance for  other  purposes  must  have  been  the 
prior  condition  of  its  employment  as  money. 
Thus  the  singular  peag  currency,  or  warn- 
pumpeag,  which  was  found  in  circulation 
among  the  North  American  Indians  by  the 
early  explorers,  was  esteemed  for  the  purpose 
of  adornment,  as  already  mentioned,  (Chapter 
IV).  The  cowry  shells  so  widely  used,  as  a 
small  currency  in  the  East,  are  valued  for 
ornamental  purposes  on  the  West  Coast  of 
Africa,  and  were  in  all  probability  employed 
as  ornaments  before  they  were  employed  as 
money.  All  the  other  articles  mentioned  in 
Chapter  IV.,  such  as  oxen,  corn,  skins,  to- 
bacco, salt,  cacao  nuts,  etc,,  which  have  per- 
formed the  functions  of  money  in  one  place 
or  other,  possessed  independent  utility  and 
value.  If  there  are  any  apparent  exceptions 
at  all  to  this  rule,  they  would  doubtless  ad- 
mit of  explanation  by  fuller  knowledge.  We 
may,  therefore,  agree  with  Storch  when  he 
says: — "It  is  impossible  that  a  substance 
which  has  no  direct  value  should  be  intro- 
duced as  money,  however  suitable  it  may  be 
in  other  respects  for  this  use." 

When  once  a  substance  is  widely  employed 
as  money,  it  is  conceivable  that  its  utility 
will  come  to  depend  mainly  upon  the  services 
which  it  thus  confers  upon  the  community. 
Gold,  for  instance,  is  far  more  important  as 
material  of  money  than  in  the  production  of 
plate,  jewelry,  watches,  gold-leaf,  etc.  A 
substance  originally  used  for  many  purposes 
may  eventually  serve  only  as  money,  and  yet, 
by  the  demand  for  currency  and  the  force  of 
habit,  may  maintain  its  value.  The  cowry 
circulation  of  the  Indian  coasts  is  probably 
a  case  in  point.  The  importance  of  habit, 
personal  or  hereditary,  is  at  least  as  great  in 
monetary  science  as  it  is,  according  to  Mr. 
Herbert  Spencer,  in  moral  and  sociological 
phenomena  generally. 

There  is,  however,  no  reason  to  suppose 
that  the  value  of  gold  and  silver  is  at  present 
due  solely  to  their  conventional  use  as  money. 
These  metals  are  endowed  with  such  singu- 
larly useful  properties  that,  if  we  could  only 
get  them  in  sufficient  abundance,  they  would 
supplant  all  the  other  metals  in  the  manu- 
facture of  household  utensils,  ornaments, 
fittings  of  all  kinds,  and  an  infinite  multitude 


MONEY  AND  THE  MECHANISM  Ol-  EXCHANGE. 


[59J  11 


of  small  articles,  which  are  now  made  of 
brass,  copper,  bronze,  pewter,  Geiman  silver, 
or  other  inferior  metals  and  alloys. 

In  order  "hat  money  may  perform  some  of 
its  functions  efficiently,  especially  those  of  a 
medium  of  exchange  and  a  store  of  value,  to 
be  carried  about,  it  is  important  that  it  should 
be  made  of  a  substance  valued  highly  in  all 
parts  of  the  world  and,  if  possible,  almost 
equally  esteemed  by  all  peoples  There  is 
reason  to  think  that  gold  and  silver  have 
been  admired  and  valued  by  all  tribes  which 
have  been  lucky  enough  to  procure  them. 
The  beautiful  luster  of  these  metals  must 
have  drawn  attention  and  excited  admiration 
as  much  in  the  earliest  as  in  the  present 
times. 

2. — PORTABILITY. 

The  material  of  money  must  not  only  be 
valuable,  but  the  value  must  be  so  related  to 
the  weight  and  bulk  of  the  material,  that  the 
money  shall  not  be  inconveniently  heavy  on 
the  one  hand,  nor  inconveniently  minute  on 
the  other.  There  was  a  tradition  in  Greece 
that  Lycurgus  obliged  the  Lacedaemonians 
to  use  iron  money,  in  order  that  its  weight 
might  deter  them  from  overmuch  trading. 
However  this  may  be,  it  is  certain  that  iron 
money  could  not  be  used  in  cash  payments 
at  the  present  day,  since  a  penny  would 
weigh  about  a  pound,  and  instead  of  a  five- 
pound  note,  we  should  have  to  deliver  a  ton 
of  iron.  During  the  last  century  copper  was 
actually  used  as  the  chief  medium  of  ex- 
change in  Sweden  ;  and  merchants  had  to 
take  a  wheelbarrow  with  them  when  they 
went  to  receive  payments  in  copper  dalers. 
Many  of  the  substances  used  as  currency  in 
former  times  must  have  been  sadly  wanting 
in  portability.  Oxen  and  sheep,  indeed, 
would  transport  themselves  on  their  own 
legs  ;  but  corn,  skins,  oil,  nuts,  almonds, 
etc.,  though  in  several  respects  forming  fair 
currency,  would  be  intolerably  bulky,  and 
troublesome  lo  transfer. 

The  portability  of  money  is  an  important 
quality  not  merely  because  it  enables  the 
owner  to  carry  small  sums  in  the  pocket  with- 
out trouble,  but  because  large  sums  can  be 
transferred  from  place  to  place,  or  from  con- 
tinent to  continent,  at  little  cost.  The  re- 
sult is  to  secure  an  approximate  uniformity 
in  the  value  of  money  in  all  parts  of  the 
world.  A  substance  which  is  very  heavy 
and  bulky  in  proportion  to  value,  like  corn 
or  coal,  may  be  very  scarce  in  one  place  and 
over  abundant  in  another ;  yet  the  supply 
and  demand  cannot  be  equalized  without 
great  expense  in  carriage.  The  cost  of  con- 
veying gold  or  silver  from  London  to  Paris, 
including  insurance,  is  only  about  four-tenths 
of  one  per  cent. ;  and  between  the  most  dis- 
tant parts  of  the  world  it  does  not  exceed 
from  two  to  three  per  cent. 

Substances  may  be  too  valuable  as  well  as 
too  cheap,  so  that  for  ordinary  transactions 


it  would  be  necessary  to  call  in  the  aid  of  the 
microscope  and  the  chemical  balance.  Dia- 
monds, apart  from  other  objections,  would 
be  far  too  valuable  for  small  transactions. 
The  value  of  such  stones  is  ••aid  to  vary  a> 
the  square  of  the  weight,  so  that  we  cannot 
institute  any  exact  comparison  with  metals 
of  which  the  value  is  simply  proportional  to 
the  weight.  But  taking  a  one-carat  diamond 
(four  grains)  as  worth  fifteen  pounds,  we  tind  7 
it  is,  weight  for  weight,  four  hundred  and 
sixty  times  as  valuable  as  go;d.  There  are 
several  rare  metals,  such  as  indium  and  osmi- 
um, which  would  likewise  be  far  to®  valuable  . 
to  circulate.  Even  gold  and  silver  are  too 
costly  for  small  currency.  A  silver  peimy 
now  weighs  seven  and  one-fourth  grains,  and 
a  gold  penny  would  weigh  only  half  a  grain. 
The  pretty  octagonal  quarter-dollar  tokens 
circulated  in  California  are  the  smallest  gold 
coins  I  have  seen,  weighing  less  than  four 
grains  each,  and  are  so  thin  that  they  can 
almost  be  blown  away. 

3. — INDESTRUCTIBILITY. 

If  it  is  to  be  passed  about  in  trade,  and 
kept  in  reserve,  money  must  not  be  subject 
to  easy  deterioration  or  loss.  It  must  not 
evaporate  like  alcohol,  nor  putrefy  like  an- 
imal substances,  nor  decay  like  wood,  nor 
rust  like  iron.  Destructible  articles,  such 
as  eggs,  dried  codfish,  cattle,  or  oil, 
have  certainly  been  used  as  currency;  but 
what  is  treated  as  money  one  day  must  soon 
afterward  be  eaten  up.  Thus  a  large  stock 
of  such  perishable  commodities  cannot  be 
kept  on  hand,  and  their  value  must  be  very 
variable.  The  several  kinds  of  corn  are  less 
subject  to  this  objection,  since,  when  well 
dried  at  first,  they  suffer  no  appreciable  de- 
terioration for  several  years. 

4. — HOMOGENEITY. 

All  portions  or  specimens  of  the  substance 
used  as  money  should    be    homogeneous,  that 
is,  of  the  same  quality,  so  that  equal  weights 
I  will  have  exactly  the  same  value.      In   order 
I  that  we  may  correctly  count  in  terms  of  any 
unit,  the  units  must  be  equal  and  similar,  so 
that  twice  two  will  always  make  four.     If  we 
j  were  to   count   in  precious   stones,  it  would 
i  seldom  happen   that   four   stones   would   be 
i  just  twice  as  valuable  as  two   stones.      Even 
I  the  precious  metals,  as  found    in   the  native 
|  state,  are  not  perfectly   homogeneous,  being 
,  mixed  together  in  almost  all  proportions;  but 
this   produces   little  inconvenience,    because 
the  assayer  readily   determines  the  quantity 
of  each  pure  metal  present  in  any  ingot.     In 
the  processes  of  refining  and   coining,    the 
metals  are  afterward   reduced  to   almost  ex- 
actly uniform   degrees  of   fineness,  so  that 
equal  weights  are  then  of  exactly  equal  value. 

5. — DIVISIBILITY. 

Closely  connected  with  the  last  property 
is  that  of  divisibility.  Every  material  is,  io» 


12  (60] 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


deed,  mechanically  divisible,  almost  without 
limit.  The  hardest  gems  can  be  broken, 
and  steel  can  be  cut  by  harder  steel.  But 
the  material  of  money  should  be  not  merely 
capable  of  division,  but  the  aggregate  value 
of  the  mass  after  division  should  be  almost 
exactly  the  same  as  before  division.  If  we 
cut  up  a  skin  or  fur,  the  pieces  will,  as  a 
general  rule,  be  far  less  valuable  than  the 
whole  skin  or  fur,  except  for  a  special  in- 
tended purpose;  and  the  same  is  the  case 
with  timber,  stone,  and  most  other  materials 
in  which  reunion  is  impossible.  But  portions 
of  metals  can  be  melted  together  again  when- 
ever it  is  desirable,  and  the  cost  of  doing 
this,  including  the  metal  lost,  is  in  the  case 
of  precious  metals  very  inconsiderable,  vary- 
ing from  one-fourth  to  one-half  penny  per 
ounce.  Thus,  approximately  speaking,  the 
value  of  any  piece  of  gold  or  silver  is  simply 
proportional  to  the  weight  of  fine  metal  which 
it  contains. 

6. — STABILITY    OF    VALUE. 

It  is  evidently  desirable  that  the  currency 
should  not  be  subject  to  fluctuations  of  value. 
The  ratios  in  which  money  exchanges  for 
other  commodities  should  be  maintained  as 
neariy  as  possible  invariable  on  the  average. 
This  would  be  a  matter  of  comparatively 
minor  importance  were  money  used  only  as  a 
measure  of  values  'at  any  one  moment,  and  as 
a  medium  of  exchange.  If  all  prices  were 
altered  in  like  proportion  as  soon  as  money 
varied  in  value,  no  one  would  lose  or  gain, 
except  as  regards  the  coin  which  he  hap- 
pened to  have  in  his  pocket,  safe,  or  bank 
balance.  But,  practically  speaking,  as  we 
have  seen,  people  do  employ  money  as  a 
standard  of  value  for  long  contracts;  and 
they  often  maintain  payments  at  the  same 
invariable  rate,  by  custom  or  law,  even  when 
the  real  value  of  the  payment  is  much  al- 
tered. Hence  every  change  in  the  value  of 
money  doe?  some  injury  to  society. 

It  might  be  plausibly  said,  indeed,  that  the 
debtor  gains  as  much  as  the  creditor  loses,  or 
vice  versa,  so  that  on  the  whole  the  commu- 
nity is  as  rich  as  before;  but  this  is  not  really 
true.  A  mathematical  analysis  of  the  subject 
shows  that  to  take  any  sum  of  money  from 
one  and  give  it  to  another  will,  on  the  av- 
erage of  cases,  injure  the  loser  more  than  it 
benefits  the  receiver.  A  person  with  an  in- 
come  of  one  hundred  pounds  a  year  would 
suffer  more  by  losing  *en  pounds  than  he 
would  gain  by  an  addition  of  ten  pounds,  be- 
cause the  degree  of  utility  cf  money  to  .him 
is  considerably  higher  at  ninety  pounds  than 
it  is  at  one  hundred  and  ten.  OP  the  same 
principle,  all  gaming,  betting,  pure  specula- 
tion, or  other  accidental  modes-  of  tr^nsfer- 
xiug  property  involve,  on  the  average,  a  dead 
loss  of  utility.  The  whole  incitement  to  ip- 
dustry  and  commerce  and  the  accumulation 
of  capital  depends  upon  the  expectation  of 
enjoyment  thence  arising,  and  every  varia- 


tion of  the  currency  tends  in  some  degree  to 
frustrate  such  expectation  and  to  lessen  the 
motives  for  exertion. 

7. — COGNIZABILITY. 

By  this  name  we  may  denote  the  capabil- 
ity of  a  substance  for  being  easily  recognized 
and  distinguished  from  all  other  substances. 
As  a  medium  of  exchange,  money  has  to  be  con- 
tinually handed  about,  and  it  will  occasion 
great  trouble  if  every  person  receiving  currency 
has  to  scrutinize,  weigh,  and  test  it.  If  it  re- 
quires any  skill  to  discriminate  good  money 
from  bad,  poor  ignorant  people  are  sure  to 
be  imposed  upon.  Hence  the  medium  of 
exchange  should  have  certain  distinct  marks 
which  nobody  can  mistake.  Precious  stones, 
even  if  in  other  respects  good  as  money, 
could  not  be  so  used,  because  only  a  skilled 
lapidary  can  surely  distinguish  between  true 
and  imitation  gems. 

Under  cognizability^  we  may  properly  in- 
clude what  has  been  aptly  called  impressibil- 
ity, namely,  the  capability  of  a  substance  to 
receive  such  an  impression,  seal,  or  design, 
as  shall  establish  its  character  as  current 
money  of  certain  value.  We  might  more 
simply  say,  that  the  material  of  money  should 
be  coinable,  so  that  a  portion,  being  once  is- 
sued according  to  proper  regulations  with 
the  impress  of  the  State,  may  be  known  to 
all  as  good  and  legal  currency,  equal  in 
weight,  size,  and  value  to  all  similarly  marked 
currency.  We  shall  afterward  consider  more 
minutely  what  is  involved  in  the  manufacture 
of  a  good  coin. 

/CHAPTER  VI. 


THE  METALS  AS   MONEY. 

It  need  not  be  pointed  out  in  detail  that, 
though  the  numerous  commodities  mentioned 
in  Chapter  IV.  possess,  in  a  greater  or  less 
degree,  the  qualities  essential  to  the  material 
of  money,  they  cannot  for  a  moment  compare 
in  this  respect  with  many  of  the  metals.  Some 
of  the  metals  seem  to  be  marked  out  by  na- 
ture as  most  fit  of  aU  substances  for  employ- 
ment as  money,  at  least  when  acting  as  a 
medium  of  exchange  and  a  store  of  value. 
Accordingly,  we  find  that  gold,  silver,  cop- 
per, tin,  lead,  and  iron  have  been  more  or 
less  extensively  in  circulation  in  all  historical 
ages.  So  closely  have  silver  and  copper  be- 
come associated  in  people's  minds  with  their 
use  as  money,  that  we  find  their  names 
adapted  as  the  names  of  money.  In  Greek, 
arguros  means  equally  silver,  silver  coin, 
and  money  generally  ;  in  Latin,  aes  is  cop- 
per, brcnze,  or  brass,  and  also  money  and 
wages',  in  French,  urgent  is  both  silver  and 
money.  The  satp^  association  of  meanings 
could  be  pointed  oui  in  many  other  languages 
including  our  own.  1  hough  out  pence  are 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


13 


now  made  of  bronze,  we  still  speak  of  them 

*s  coppers. 

With  the  exception  of  iron,  the  principal 
metals  are  peculiarly  indestructible,  and  un- 
dergo little  or  no  deterioration  when  hoarded 
up  or  handed  about.  Each  kind  of  metal  is 
approximately  homogeneous,  piece  differing 
from  piece  in  nothing  but  weight,  the  differ- 
ences of  fineness  being  ascertained  and  al- 
lowed for  in  the  case  of  gold  and  silver.  The 
metals  are  also  perfectly  divisible,  either  by 
the  chisel  or  the  crucible,  and  yet  a  second 
melting  will  always  reunite  the  pieces  again 
with  little  cost  or  loss  of  material.  Most  of 
them  possess  the  properties  of  cognizability 
and  impressibility  in  the  highest  degree. 
Each  metal  has  its  characteristic  color,  den- 
sity, and  hardness,  so  that  it  is  easy  for  a 
person  with  very  slight  experience  to  dis- 
tinguish one  metal  from  another.  Their 
malleability  enables  us  to  roll,  cut,  and  ham- 
mer them  into  any  required  form,  and  to  im- 
press a  permanent  design  by  means  of  dies. 
With  the  exception  of  porftelain  coins,  which 
have  been  used  in  Siam,  I  am  not  aware 
that  coins  have  ever  been  made  of  any  sub- 
stance except  metal. 

In  respect  to  steadiness  of  value  the  metals 
are  probably  less  satisfactory,  regarded  as  a 
standard  of  value,  than  many  other  commodi- 
ties, such  as  corn.  From  the  earliest  ages 
metals  must  have  been  most  highly  valued,  as 
we  may  learn  from  the  way  in  which  they  are 
esteemed  by  savages  in  the  present  day.  But 
their  value  has  suffered  and  is  suffering  an 
almost  continuous  decline,  owing  to  the  pro- 
gress of  industry,  and  the  discovery  of  new 
mechanical  and  chemical  means  for  their  ex- 
traction. Even  the  order  of  their  values  be- 
comes changed.  According  to  Mr.  Glad- 
stone, iron  was,  in  the  Homeric  age,  much 
more  valued  than  chalkos,  or  copper,  which 
latter  was  then  the  most  common  and  useful 
metal.  Lead  was  little  known  or  valued,  but 
gold,  silver,  and  tin  held  the  same  places  at 
the  head  of  the  list,  which  they  hold  at  the 
present  day.  • 

IRON. 

Proceeding  to  consider  briefly  each  of  the 
more  important  metals,  the  statements  of 
Aristotle,  Pollux,  and  other  writers  prove 
that  iron  was  extensively  employed  as  money 
in  early  times.  Not  a  single  specimen  of  such 
money  is  now  known  to  exist,  but  this  is 
easily  accounted  for  by  the  rapidity  with 
which  the  metal  rusts.  In  the  absence  of 
specimens,  we  do  not  know  the  form  and  size 
of  the  money,  but  it  is  probable  that  it  con- 
sisted of  small  bars,  ingots,  or  spikes,  some- 
what similar  to  the  small  bars  of  iron  which 
are  still  used  in  trading  with  the  natives  of 
Central  Africa.  Iron  money  is  still,  or  was 
not  long  since,  used  in  Japan  for  small 
values;  but  its  issue  from  the  mint  has  been 
discontinued. 

The  use  of  pure  iron   coins  in   civilized 


countries  at  the  present  day  is  out  of  the 
question,  both  because  of  the  cheapness  of 
the  metal,  and  because  the  coins  would  soon 
lose  the  sharpness  of  their  impressions  by 
rusting,  and  become  dirty  and  easily  counter- 
feited. But  it  is  quite  possible  that  iron  or 
steel  might  still  be  alloyed  with  other  metals 
for  the  coining  of  pence. 

LEAD. 

Lead  has  often  been  used  as  currency,  and 
is  occasionally  so  mentioned  by  the  ancient 
Greek  and  Latin  poets.  In  1635  leaden 
bullets  were  used  for  change  at  the  rate  of  a 
farthing  a  piece  in  Massachusetts.  At  the 
present  day  lead  is  still  current  in  Burmah. 
being  passed  by  weight  for  small  payments. 
The  extreme  softness  of  the  metal  obviously 
renders  it  quite  unfit  for  coining  in  the  pure 
state.  It  is  one  of  the  components  of  pewter, 
which  has  frequently  been  coined. 

TIN. 

Tin  has  also  been  employed  as  money  at 
various  times.  Dionysius  -of  Syracuse  is- 
sued the  earliest  tin  coinage  of  which  any- 
thing is  certainly  known;  but  as  tin  was  in 
early  times  procured  from  Cornwall,  it  can 
hardly  be  doubted  that  the  first  British  cur- 
rency was  composed  of  tin.  In  innumerable 
cabinets  may  be  found  series  of  tin  coins  is« 
sued  by  the  Roman  emperors;  the  kings  of 
England  also  often  coined  tin.  In  1680  tin 
farthings  were  struck  by  Charles  II.,  a  stud 
of  copper  being  inserted  in  the  middle  of  the 
coin  to  render  counterfeiting  more  difficult. 
Tin  halfpence  and  farthings  were  also  issued 
in  considerable  quantities  in  the  reign  of 
William  and  Mary  (1690  to  1691).  Tin  coins 
were  formerly  employed  among  the  Javanese, 
Mexicans,  and  many  other  peoples,  and  the 
metal  is  said  to  be  still  current  by  weight  in 
the  Straits  of  Malacca. 

Tin  would  be  in  many  respects  admirably 
suited  for  making  pence,  possessing  a  fine 
white  color,  perfect  freedom  from  corrosion, 
and  a  much  higher  value  than  copper.  Un- 
fortunately, its  softness  and  tendency  to  bend 
and  break  when  pure  are  insuperable  obsta- 
cles to  its  employment  as  money. 

COPPER. 

This  metal  is  in  many  respects  well  suited 
for  coining.  It  does  not  suffer  from  expo- 
sure to  dry  air,  possesses  a  fine  distinct  red 
color,  and  takes  a  good  impression  from  the 
dies,  which  impression  it  retains  better 
than  the  majority  of  other  metals.  Accord- 
ingly, we  find  that  it  has  been  continually 
employed  as  currency,  either  alone  or  in  sub- 
ordination to  gold  and  silver.  The  earliest 
Hebrew  coins  were  composed  chiefly  of  cop- 
per,  and  the  metallic  currency  of  Rome  con- 
sisted of  the  impure  copper,  called  aes,  until 
B.  c.  269,  when  silver  was  first  coined.  la 
later  times  copper  has  not  only  been  gener- 
ally used  for  coins  of  minor  value,  but,  in 


14  [62] 


MONEY  AND  XHE  MECHANISM  OF  EXCHANGE. 


^Russia  and  in  Sweden,  a  hundred  years  ago, 
ait  formed  the  principal  mass  of  the  currency. 
Its  low  value  now  stands  in  the  way  of  its 
wse.  A  penny,  if  made  so  as  to  contain 
metal  equivalent  to  its  nominal  value,  would 
Weigh  eight  hundred  and  seventy  grains,  or 
more  than  an  ounce  and  three  quarters  troy. 
Its  value  is  also  subject  to  considerable  fluc- 
tuations. Moreover,  it  is  unlikely  that  cop- 
per in  a  pure  state  will  be  coined  for  the 
future,  since  bronze  is  now  known  to  be  so 
much  more  suitable  for  coinage. 


I  need  hardly  say  that  silver  is  distin- 
ffuished  by  its  exquisite  white  luster,  which 
is  not  rivalled  by  that  of  any  other  pure 
metal.  Certain  alloys,  indeed,  such  as  spec- 
ulum metal,  or  Britannia  metal,  have  been 
made  of  almost  equal  luster,  but  they  are 
either  brittle,  or  so  soft  as  not  to  give  the 
metallic  ring  of  silver.  When  much  exposed 
to  the  air  silver  tarnishes  by  the  formation  of 
a  black  film  of  silver  sulphide;  but  this  forms 
no  obstacle  to  its  use  as  currency,  since  the 
film  is  always  very  thin,  and  its  peculiar 
black  color  even  assists  in  distinguishing  the 
pure  metal  from  the  counterfeit.  When 
suitably  alloyed,  silver  is  sufficiently  hard  to 
stand  much  wear,  and  next  after  gold  it  is 
the  most  malleable  and  impressible  of  all  the 
metals. 

A  coin  or  other  object  made  of  silver  may 
be  known  by  the  following  marks — (i)  a  fine 
pure  white  luster,  where  newly  rubbed  or 
scraped;  (2)  a  blackish  tint  where  the  surface 
has  long  been  exposed  to  the  air;  (3)  a  mod- 
erate specific  gravity;  (4)  a  good  metallic 
ring  when  thrown  down;  (5)  considerable 
hardness ;  (6)  strong  nitric  acid  dissolves  sil- 
ver, and  the  solution  turns  black  if  exposed 
to  light. 

Silver  has  been  coined,  it  need  hardly  be 
said,  in  all  ages  since  the  first  invention  of 
the  art,  and  its  value  relatively  to  gold  and 
copper  fits  it  for  taking  the  middle  place  in 
a  monetary  system.  Its  value  too  remains 
very  stable  for  periods  of  fifty  or  a  hundred 
years,  because  a  vast  stock  of  the  metal  is 
kept  in  the  form  of  plate,  watches,  jewelry, 
and  ornaments  of  various  kinds,  in  addition 
to  money,  so  that  a  variation  in  the  supply 
for  a  few  years  cannot  make  any  appreciable 
change  in  the  total  stock.  Productive  silver 
mines  exist  in  almost  all  parts  of  the  world ; 
and  wherever  lead  is  produced,  a  small  but 
Steady  yield  of  silver  is  obtained  from  it  by 
the  Pattinson  method  of  extraction. 


Silver  is  beautiful,  yet  gold  is  even  more 
beautiful,  and  presents  indeed  a  combination 
of  useful  and  striking  properties  quite  with- 
out parallel  among  known  substances.  To  a 
rich  and  brilliant  yellow  color,  which  can  only 
be  adequately  described  as  golden,  it  joins 
astonishing  malleability  and  a  very  high  spe- 


cific gravity,  exceeded  only  by  that  of  plati- 
num and  a  few  of  the  rarest  or  almost  un- 
known metals.  We  can  usually  ascertain 
whether  a  coin  consists  of  gold  or  not,  by 
looking  for  three  characteristic  marks :  (i) 
the  brilliant  yellow  color  ;  (2)  the  high  specific 
gravity  ;  (3)  the  metallic  ring  of  the  coin  when 
thrown  down,  which  will  prove  the  absence 
of  lead  or  platinum  in  the  interior  of  the 
coin. 

*-  If  there  remain  any  doubt  about  a  metal 
being  gold,  we  have  only  to  appeal  to  its  sol- 
ubility. Gold  is  remarkable  for  its  freedom 
trom  corrosion  or  solution,  being  quite  unaf- 
fected and  untarnished  after  exposure  of  any 
length  of  time  to  dry,  or  moist,  or  impure 
air,  and  being  also  insoluble  in  all  the  simple 
acids.  Strong  nitric  acid  will  rapidly  attack 
any  colored  counterfeit  metal,  but  will  not 
touch  standard  gold,  or  will,  at  the  most, 
feebly  dissolve  the  copper  and  silver  alloyed 
with  it. 

In  almost  all  respects  gold  is  perfectly  suit- 
ed for  coining.  When  quite  pure,  indeed, 
it  is  almost  as  soft  as  tin,  but  when  alloyed 
with  one-tenth  or  one-twelfth  part  of  copper, 
becomes  sufficiently  hard  to  resist  wear  and 
tear,  and  to  give  a  good  metallic  ring  ;  yet  it 
remains  perfectly  malleable  and  takes  a  fine 
impression.  Its  melting  point  is  moderately 
high,  and  yet  there  is  no  perceptible  oxidiza- 
tion or  volatilization  of  the  metal  at  the  high- 
est temperature  which  can  be  produced  in  a 
furnace.  Thus  old  coin  and  fragments  of 
the  metal  can  be  melted  into  bullion  at  a  very 
slight  loss,  and  at  a  cost  of  not  more  than 
one  half-penny  per  ounce  troy,  or  little  more 
than  one-twentieth  of  one  per  cent. 

PLATINUM. 

This  is  one  of  those  comparatively  rare 
metals  which  have  been  known  only  in  recent 
times.  Its  extremely  high  melting-point,  and 
low  affinity  for  oxygen,  render  it  one  of  the 
most  indestructible  of  all  substances,  whilst 
its  white  color,  joined  to  its  excessively  high 
specific  gravity,  are  marks  which  cannot  be 
mistaken.  As  it  seemed  in  these  respects 
well  suited  for  currency,  the  Russian  govern- 
ment, which  owns  the  principal  platinum 
mines  in  the  Ural  Mountains,  commenced  to 
coin  it  in  1828,  into  pieces  intended  to  have 
the  values  of  twelve,  six,  and  three  roubles. 
Several  objections  to  this  use  of  the  metal 
soon  presented  themselves.  The  appearance 
of  platinum  being  inferior  to  that  of  silver  or 
gold,  it  is  seldom  or  never  employed  for  pur- 
poses of  ornament,  and  its  only  extensive  use 
is  in  the  construction  of  chemical  apparatus. 
Hence  there  is  no  large  stock  of  the  metal 
kept  on  hand,  and  the  localities  where  it  is 
found  being  few,  the  supply  is  incapable  of 
being  much  increased,  so  that  any  variation 
of  demand  is  sure  to  cause  a  great  change  in 
its  value.  Moreover,  the  cost  of  making  the 
coins  was  very  great,  owing  to  the  extreme 
difficulty  of  melting  platinum,  and  the  wora 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


J63]  15 


coins  could  not  be  withdrawn  and  recoined 
without  much  additional  cost.  Platinum  be- 
ing thus  found  to  be  quite  unfitted  for  cur- 
rency, the  scheme  was  abandoned  in  1845, 
and  the  existing  coins  withdrawn  from  circu- 
lation. 

Great  improvements  having  been  lately 
made  in  the  modes  of  working  platinum,  it 
was  proposed  by  M.  de  Jacobi,  the  represent- 
ative of  Russia  at  the  International  Mone- 
•  tary  Conference  held  at  Paris,  in  1867,  that 
platinum  should  be  employed  for  the  coinage 
of  five-franc  pieces.  It  is  not  likely  that 
such  a  suggestion  will  be  adopted. 

NICKEL. 

This  metal  was  formerly  regarded  as  the 
bane  of  the  metallurgist,  but  has  recently 
assumed  an  important  place  in  manufactur- 
ing industry,  and  even  in  monetary  science. 
It  is  used  only  in  alloy  with  other  metals, 
and  for  the  purposes  of  coinage  it  is  usual 
to  melt  up  one  part  of  nickel  with  three  of 
copper.  Some  of  the  coins  of  Belgium,  and 
the  one-cent  pieces  of  the  United  States 
have  been  made  of  this  material  and  seem  to 
be  very  convenient.  In  1869  and  1870-1, 
pence  and  halfpence,  to  the  value  of  ^"3,000, 
were  executed  in  the  same  alloy,  at  the  En- 
glish mint  for  the  colony  of  Jamaica.  These 
are  some  of  the  most  beautiful  coins  which 
have  ever  been  issued  from  Tower  Hill,  and 
are  in  most  respects  admirably  suited  for  cir- 
culation. But  they  were  unfortunately  made 
much  too  large  and  heavy  ;  not  only  were 
they  thus  rendered  less  convenient,  but  when, 
in  1873,  the  Deputy  Master  of  the  Mint  was 
requested  to  supply  a  further  quantity  of  the 
same  coins,  he  found  that  the  price  of  nickel 
had  risen  very  much,  so  that  the  materials 
for  the  coinage  alone  would  cost  more  than 
the  nominal  value  of  the  coins  to  be  produced. 
This  rise  in  prices  was  due  partly  to  the 
small  number  of  nickel  mines  yet  worked, 
and  partly  to  the  great  demand  for  the  metal 
occasioned  by  the  German  government, 
which  has  chosen  the  same  alloy  for  the  ten 
and  five-pfennig  pieces  of  its  new  monetary 
system.  These  coins,  which  are  now  being  is- 
sued, are  of  a  convenient  size,  rather  less  than 
a  shilling  and  sixpence  respectively,  and  ap- 
pear to  be  in  every  way  admirably  suited  to 
their  purpose.  The  German  empire  will  soon 
possess  the  best  instead  of  the  worst  fractional 
currency  in  the  world.  The  variableness  in 
the  price  of  nickel,  which  is  at  present  a 
cause  of  embarrassment,  may  after  a  time  be- 
come less  serious,  when  the  stock  in  use  and 
the  annual  produce  become  larger. 

OTHER    METALS. 

The  metals  yet  mentioned  are  but  a  small 
number  of  those  now  known  by  chemists  to 
exist,  and  it  would  be  unwise  to  assume  as 
certain  that  money  must  always  be  made  in 
the  future  of  the  same  materials  as  in  the 
past.  It  is  just  conceivable,  on  the  one  hand, 


that  in  the  course  of  time  some  metal  still 
more  valuable  than  gold  may  be  introduced. 
Roughly  speaking,  the  order  in  which  the 
metals  have  hitherto  acted,  as  the  principal 
medium  of  exchange,  is  (i)  copper,  (2)  silver, 
(3)  gold  ;  as  a  general  decline  in  the  values 
of  the  meta!s  took  place,  the  more  valuable 
replaced  the  less  valuable,  and  the  more  port- 
able gold  is  now  rapidly  taking  the  place  of 
silver.  Some  still  more  valuable  metal,  such 
as  the  scarce  and  intractable  iridium  or  os- 
mium, or  the  remarkable  metal  palladium, 
might  possibly  take  the  place  of  gold.  This' 
however,  is  barely  more  than  a  matter  of  sci- 
entific fancy. 

On  the  other  hand,  many  metals  exist  which 
might  be  produced  more  cheaply  than  silver, 
such  as  aluminium  or  manganese.  It  may  be 
well  worthy  of  inquiry  whether  in  such  metals 
may  not  be  found  the  best  solution  of  the 
fractional  currency  difficulty,  to  be  afterward 
more  fully  discussed  (Chapter  XI). 

ALLOYS   OF    METALS. 

At  one  time  or  another  an  immense  num- 
ber of  different  alloys  or  mixtures  of  metals 
have  been  coined.  It  would  be  strictly  cor- 
rect to  say,  indeed,  that  metals  have  seldom 
been  issued  except  in  the  state  of  alloy.  Even 
gold  and  silver,  as  usually  coined,  are  either 
alloyed  with  each  other  or  with  copper.  The 
latter  metal,  too,  has  generally  been  employed 
in  union  with  other  metals.  The  Roman  as 
consisted,  not  of  pure  copper,  but  of  the 
mixed  metal  aes,  an  alloy  of  copper  and  tin, 
partially  resembling  the  bronze  which  has 
quite  recently  been  introduced  for  small  mon- 
ey in  France,  England,  and  other  countries. 
Brass  was  largely  coined  by  some  of  the  Ro- 
man emperors.  In  many  cases,  no  doubt, 
the  early  metallurgists  in  smelting  an  ore 
obtained  a  natural  alloy  of  all  the  metals  con- 
tained therein,  and  being  unable  to  separate 
them,  were  obliged  to  use  the  mixture.  Thus 
we  may  explain  the  curious  metal  containing 
from  sixty  to  seventy  parts  of  copper,  twenty 
to  twenty-five  of  zinc,  five  to  eleven  of  silver, 
with  small  quantities  of  gold,  lead,  and  tin, 
which  was  employed  to  make  the  stycas,  or 
small  money,  of  the  early  kings  of  Northum- 
bria. 

Monarchs  or  States  in  difficulty  have  often 
coined  the  metal  which  they  could  most  easily 
obtain.  The  Irish  money  issued  by  James 
II.  was  said  to  have  been  coined  from  a  mix- 
ture of  old  guns,  broken  bells,  waste  copper, 
brass,  and  pewter,  old  kitchen  furniture;  and 
in  fact  any  refuse  metal  which  his  officers 
could  lay  their  hands  upon  He  attempted 
to  make  pewter  crowns  ciww  Ve  for  the  ralov 
of  silver  ones. 


16  [64] 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


CHAPTER  VII. 

COINS. 

It  is  clear  that  the  metals  far  surpass  all 
other  substances  in  suitability  for  the  purpose 
of  circulation,  and  it  is  almost  equally  clear 
that  certain  metals  surpass  all  the  other  met- 
als in  this  respect.  Of  gold  and  silver  espe- 
cially we  may  say,  with  Turgot,  that,  by  the 
nature  of  things,  they  are  constituted  the  uni- 
versal money  independently  of  all  convention 
and  law.  Even  if  the  art  of  coining  had 
never  been  invented,  gold  and  silver  would 
probably  have  formed  the  currency  of  the 
world;  but  we  have  now  to  consider  how,  by 
shaping  weighed  pieces  of  these  metals  into 
coins,  we  can  make  use  of  their  valuable 
properties  to  the  greatest  advantage. 

The  primitive  mode  of  circulating  the  met- 
als, indeed,  was  simply  that  of  buying  and 
selling  them  against  other  commodities,  the 
weights  or  portions  being  rudely  estimated. 
Some  of  the  earliest  specimens  of  money  con- 
sist of  the  aes  rude,  or  rough,  shapeless  lumps 
of  native  copper  employed  as  money  by  the 
ancient  Etruscans.  In  the  Museum  of  the 
Archiginnasio  at  Bologna  may  be  seen  the 
skeleton  of  an  Etruscan,  half  embedded  in 
earth,  with  the  piece  of  rough  copper  yet 
within  the  grasp  of  the  bony  hand,  placed  there 
to  meet  the  demands  of  Charon.  Pliny,  more- 
over, tells  us  that,  before  the  time  of  Servius 
Tullius,  copper  was  circulated  in  the  rude  state. 
Afterward  copper,  brass,  or  iron  were,  it  is 
probable,  employed  in  the  form  of  small  bars 
or  spikes,  and  the  name  of  the  Greek  unit  of 
value,  drachma,  is  supposed  to  have  been  de- 
rived from  the  fact  that  six  of  these  metal 
spikes  could  be  grasped  in  the  hand,  each 
piece  being  called  an  obolus.  Such  is  sup- 
posed to  have  been  the  first  system  of  money 
which  was  passed  purely  by  tale,  or  number  of 
pieces. 

Gold  is  most  readily  obtained  from  alluvial 
deposits,  and  then  has  the  form  of  grains  or 
dust.  Hence *this  is  the  primitive  form  of 
gold  money.  The  ancient  Peruvians  enclosed 
the  gold  dust  for  the  sake  of  security  in  quills, 
and  thus  passed  it  about  more  conveniently. 

At  the  gold  diggings  of  California,  Aus- 
tralia, or  New  Zealand,  gold  dust  is  to  the 
present  day  sold  directly  against  other  goods 
by  the  aid  of  scales.  The  art  of  melting  gold 
and  silver  and  fashioning  them  by  the  ham- 
mer into  various  shapes  was  early  invented. 
Even  in  the  present  day,  the  poor  Hindoo, 
who  has  saved  up  a  few  rupees,  employs  a 
silversmith  to  melt  them  up  and  beat  them 
into  a  simple  bracelet,  which  he  wears  in  the 
double  character  of  an  ornament  and  a  hoard  of 
wealth. 

Similarly,  the  ancient  Goths  and  Celts 
were  accustomed  to  fashion  gold  into  thick 
wires,  which  they  rolled  up  into  spiral  rings 
and  probably  wore  upon  their  fingers  until 


the  metal  was  wanted  for  trading  purposes. 
There  can  be  little  doubt  that  this  ring 
money,  of  which  abundant  specimens  have 
been  found  in  various  parts  of  Europe  and 
Asia,  formed  the  first  approximation  to  a 
coinage.  In  some  cases  the  rings  may  have 
been  intentionally  made  of  equal  weight; 
for  Caesar  speaks  of  the  Britons  as  having 
iron  rings,  adjusted  to  a  certain  weight,  to 
serve  as  money.  In  other  cases  the  rings,  or 
amulets,  were  bought  and  sold  by  aid  of  the 
balance  ;  and  in  certain  Egyptian  paintings 
men  are  represented  as  in  the  act  of  weighing 
rings.  It  is  probable  that  the  necessity  for 
frequent  weighings  was  avoided  by  making 
up  sealed  bags  containing  a  certain  weight  of 
rings,  and  such  perhaps  are  the  bags  of  silver 
given  by  Naaman  to  Gehazi  in  the  Second 
Book  of  Kings  (v.  23).  Ring  money  is  said 
to  be  still  current  in  Nubia. 

Gold  and  silver  have  been  fashioned  into 
various  other  forms  to  serve  as  money. 
Thus  the  Siamese  money  consists  of  very 
small  ingots  or  bars  bent  double  in  a  peculiar 
manner.  In  Pondicherry  and  elsewhere 
gold  is  circulated  in  the  form  of  small  grains 
or  buttons. 

THE   INVENTION    OF   COINING. 

The  date  of  the  invention  of  coining  can 
be  assigned  with  some  degree  of  probability. 
Coined  money  was  clearly  unknown  in  the 
Homeric  times,  and  it  was  known  in  the 
time  of  Lycurgus.  We  might  therefore  as- 
sume, with  various  authorities,  that  it  wa*s 
invented  in  the  mean  time,  or  about  goo  B.C. 
There  is  a  tradition,  moreover,  that  Phei- 
don,  King  of  Argos,  first  struck  silver  money 
in  the  island  of  yEgina  about  895  B.  c. ,  and 
the  tradition  is  supported  by  the  existence  of 
small  stamped  ingots  of  silver  which  have 
been  found  in  ^Egina.  Later  inquiries,  how- 
ever, lead  to  the  conclusion  that  Pheidon 
lived  in  the  middle  of  the  eighth  century  B.C., 
and  Grote  has  shown  good  reasons  for  be- 
lieving that  what  he  did  accomplish  was  done 
in  Argos,  and  not  in  /Egina. 

The  mode  in  which  the  invention  hap- 
pened is  sufficiently  evident.  Seals  were 
familiarly  employed  in  very  early  times,  as 
we  learn  from  the  Egyptian  paintings  or  the 
stamped  bricks  of  Nineveh.  Being  em- 
ployed to  signify  possession,  or  to  ratify  con- 
tracts, they  came  to  indicate  authority.  When 
a  ruler  first  undertook  to  certify  the  weights 
of  pieces  of  metal,  he  naturally  employed  his 
seal  to  make  the  fact  known,  just  as,  at 
Goldsmiths  Hall,  a  small  punch  is  used  to 
certify  the  fineness  of  plate.  In  the  earliest 
forms  of  coinage  there  were  no  attempts  at 
so  fashioning  the  metal  that  its  weight  could 
not  be  altered  without  destroying  the  stamp 
or  design.  The  earliest  coins  struck,  both 
in  Lydia  and  in  the  Peloponnesus,  wer~ 
stamped  on  one  side  only.  The  Persian 
money,  called  the  larin,  consists  of  a  round 
silver  wire,  about  six  centimeters  long,  bent 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


[65]  17 


in  two,  and  stamped  on  one  part  which  is 
flattened  for  the  purpose.  It  is  probably  a 
relic  of  ring  money.  The  present  circulation 
of  China  is  composed  to  a  considerable  ex- 
tent of  the  so-called  Sycee  silver,  which  con- 
sists of  small  shoe-shaped  ingots,  assayed 
and  stamped,  according  to  some  accounts, 
by  the  government. 

^VHAT   IS   A   COIN? 

Although  in  rings,  or  stamped  ingots,  we 
have  an  approximation  to  what  we  call  coin, 
it  is  plain  that  we  must  do  something  more 
to  make  convenient  money.  The  stamp  must 
be  so  impressed  as  to  certify,  not  only  the 
fineness  and  the  original  weight,  but  also  the 
absence  of  any  subsequent  alteration.  To 
coin  metal,  as  we  now  understand  the  art,  is 
to  form  it  into  flat  pieces  of  a  circular,  oval, 
square,  hexagonal,  octagonal,  or  other  regu- 
lar outline,  and  then  to  impress  designs  from 
engraved  dies  upon  both  sides,  and  some- 
times upon  the  edges.  Not  only  is  it  very 
costly  and  difficult  to  counterfeit  coins  well 
executed  in  this  manner,  but  the  integrity  of 
the  design  assures  us  that  no  owner  of  the 
coin  has  tampered  with  it.  Even  the  amount 
of  ordinary  wear  and  tear,  which  the  coin 
has  suffered,  may  be  rudely  inferred  from  the 
sharpness  or  partial  effacement  of  the  de- 
signs, and  the  roundness  of  the  edges. 
"Pieces  of  money,"  says  M.  Chevalier,  "are 
ingots  of  which  the  weight  and  the  fineness 
are  certified."  There  is  nothing  in  this  defi- 
nition to  distinguish  coins  from  Sycee  silver, 
or  from  the  ordinary  stamped  bars  and  ingots 
of  bullion.  I  should  prefer,  therefore,  to 
say,  coins  are  ingots  of  which  the  -weight  and 
fineness  are  certified  by  the  integrity  of  designs 
impressed  upon  the  surfaces  of  the  metal. 

VARIOUS   FORMS   OF   COINS. 

From  time  to  time  coins  have  been  manu- 
factured in  very  many  forms,  although  circu- 
lar coins  vastly  predominate  in  number. 
Among  the  innumerable  issues  of  the  Ger- 
man States  maybe  found  octagonal  and  hex- 
agonal coins.  A  singular  square  coin,  with 
a  circular  impress  in  the  center,  was  issued 
from  Salzburg  by  Rudbert  in  1513.  Siege- 
pieces  have  been  issued  in  England  and  else- 
where in  the  form  of  squares,  lozenges,  etc. 
Some  of  the  most  extraordinary  specimens 
of  money  ever  used  are  the  large  plates  of 
pure  copper  which  circulated  in  Sweden  in 
the  eighteenth  century.  These  were  about 
three-eights  of  an  inch  in  thickness,  and  va- 
ried in  size,  the  half-daler  being  three  and 
a-half  inches  square,  and  the  two  daler  piece 
as  much  as  seven  and  a-half  inches  square, 
and  three  and  a-half  pounds  in  weight.  As 
the  whole  surface  could  not  be  covered  with 
a  design,  a  circular  impress  was  struck  near 
to  each  corner,  and  one  in  the  center,  so  as 
to  render  alteration  as  difficult  as  possible. 

Among  Oriental  nations  the  shapes  of 
coins  are  still  more  curious.  In  Japan,  the 


principal  part  of  the  circulation  consists  of 
silver  itzibus,  which  are  oblong,  flat  pieces  of 
silver,  covered  on  both  sides  with  designs  and 
legends,  the  characters  being  partly  in  relief 
and  partly  incised.  The  smaller  silver  coins 
have  a  similar  form.  Among  the  minor 
Japanese  coins  are  found  large  oval,  molded 
pieces  of  copper  or  mixed  metal,  each  with 
a  square  hole  in  the  center.  The  Chinese 
cash  are  well  known  to  be  round  disks  of  a 
kind  of  brass,  with  a  square  hole  iu  the  cen- 
ter to  allow  of  their  being  strung  together. 
The  coins  of  Formosa  are  similar,  except 
that  they  are  much  larger  and  thicker.  All 
the  copper  and  base  metal  coins  of  China, 
Japan,  and  Formosa  are  distinguished  by 
a  broad  flat  rim,  and  they  have  characters  in 
relief  upon  a  sunk  ground,  somewhat  in  the 
manner  of  Boulton  and  Watt's  copper  pence. 
They  are  manufactured  by  molding  the 
metal,  and  then  filing  the  protuberant  parts 
smooth.  Such  coins  stand  wear,  and  pre- 
serve their  design  better  than  European 
coins,  but  they  are  easily  counterfeited. 

The  most  singular  of  all  coins  are  the 
scimitar-shaped  pieces  formerly  circulated  in 
Persia. 

THF.   BEST    FORM    E£>R    COINS. 

It  is  a  matter  of  considerable  importance 
to  devise  the  best  possible  fonn  for  coins, 
and  the  best  mode  of  striking  them.  The 
use  of  money  creates,  as  it  were,  an  artificial 
crime  of  false  coining,  snd  so  great  is  the 
temptation  to  engage  in  this  illicit  art  that 
no  penalty  is  sufficient  to  repress  it,  as  the 
experience  of  two  thousand  years  sufficiently 
proves.  Thousands  of  persons  have  suffered 
death,  and  all  the  penalties  of  treason  have 
been  enforced  without  effect.  Ruding  is 
then  unquestionably  right  in  saying,  that  our 
efforts  should  be  directed  not  so  much  to  the 
punishment  of  the  crime,  as  to  its  prevention 
by  improvements  in  the  art  of  coining.  We 
must  strike  our  coins  so  perfectly  that  suc- 
cessful imitation  or  alteration  shall  be  out  of 
the  question. 

There  are  four  principal  objects  at  which 
we  should  aim  in  deciding  upon  the  exact 
design  for  a  coin. 

1.  To  prevent  counterfeiting. 

2.  To  prevent  the  fraudulent  removal  of 
metal  from  the  coin. 

3.  To  reduce  the  loss  of  metal  by  legiti- 
mate wear  and  tear. 

4.  To  make  the  coin  an  artistic  and  histo- 
rical monument  of  the  State  issuing  it,  and 
the  people  using  it. 

For  the  prevention  of  counterfeiting,  our 
principal  resource  is  to  render  the  mechani- 
cal execution  of  the  piece  as  perfect  as  pos- 
sible, and  to  strike  it  in  a  way  which  can 
only  be  accomplished  with  the  aid  of  elabo- 
rate machinery.  When  all  coins  are  made  by 
casting,  the  false  coiner  ;."-•:•  id  work  almost 
as  skillfully  as  the  moneyer.  Hence,  in  the 
Roman  empire,  it  was  difficult  to  distinguish 


18  [66]  MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


between  true  and  false  coin.  Hammered 
money  was  a  great  improvement  on  molded 
money,  and  milled  money  on  hammered 
money.  The  introduction  of  the  steam  coin- 
ing press  by  Boulton  and  Watt  was  the  next 
great  improvement ;  and  the  knee-joint  press 
of  Ulhorn  and  Thonnelier,  now  used  in 
nearly  all  mints,  except  that  on  Tower  Hill, 
forms  the  last  advance  in  the  mechanism  for 
striking  coin. 

The  utmost  attention  ought  to  be  paid  to 
the  perfect  execution  of  the  milling,  legend, 
^or  other  design,  impressed  upon  the  edge  of 
modern  coins.  This  serves  at  once  to  pre- 
vent clipping  or  tampering  with  the  coin,  and 
•to  baffle  the  skill  of  the  counterfeiter.  The 
coins  of  ancieut  nations  were  issued  with 
rough,  unstamped  edges,  and  the  first  coin 
marked  with  a  legend  on  the  edge  was  a  sil- 
ver coin  of  Charles  IX.  of  France,  issued  in 
the  year  1573.  The  English  coinage  was 
first  grained  or  marked  on  the  edge  in  1658 
or  1662,  when  the  use  of  the  mill  and  screw 
was  finally  established  in  the  mint.  All  the 
larger  coins  now  issued  from  the  English, 
and,  indeed,  from  most  other  mints,  bear  a 
milled  or  serrated  edge,  produced  by  ridges 
on  the  internal  surface  of  the  collar  which 
holds  the  coin  when  being  struck  between  the 
two  dies.  These  collars  are  difficult  to  make, 
and  useless  when  made  except  in  the  coinage- 
press,  and  the  counterfeiter  cannot  imitate 
the  milling  by  hand  work,  it  being  almost 
impossible  to  use  a  file  with  sufficient  regu- 
larity. 

The  French  five-franc  pieces  bear  a  legend 
on  the  edge  in  raised  letters,  the  words  being 
"  Dieu  protege  la  France."  Such  raised  let- 
ters are  quite  beyond  the  art  of  the  counter- 
feiter. The  English  crown  has  a  legend, 
"  Decus  et  Tutamen,"  and  the  year  of  the 
reign  in  incised  letters,  which  could  obvious- 
ly be  imitated  by  the  use  of  punches.  The 
new  German  gold  coins  are  issued  with 
smooth  edges,  the  ten-mark  piece  having 
only  a  few  slight  incised  marks,  and  the 
twenty -mark  piece  bearing  the  legend,  "  Gott 
mit  uns,"  in  faint  letters;  this  is  surely  a  far 
less  satisfactory  protection  than  the  milled 
edge  adopted  in  most  other  mints.  It  may 
ibe  worthy  of  inquiry,  whether  the  milled 
edge  might  not  be  combined  with  a  legend 
or  other  design  in  relief,  so  as  to  render  imi- 
tation still  more  difficult.  One  or  two  cen- 
turies ago,  silver  coins  used  to  have  a  kind  of 
ornamental  beading  on  the  edge.  Elaborate 
patterns,  produced  by  machinery  with  per- 
fect regularity,  and  altogether  u.  capable  of 
imitation  by  haad,  might  now  be  substituted. 

COINS  AS  WORKS.  OF  ART. 

I  have  in  the  previous  section  considered 
the  best  form  of  a  coin  as  regards  the  pre- 
vention of  counterfeiting.  The  falsification 
•of  coins,  the  loss  which  they  undergo  by  ab- 
Tasion,  and  the  best  means  of  avoiding  these 
«vils  will  be  treated  in  Chapter  XIII.  Of  the 


use  of  coins  as  artistic  medals  it  would  not  be 
appropriate  to  speak  at  any  length.  I  must 
however  remark  that  many  of  the  coins  still 
issued  from  the  English  mint  are  monuments 
of  bad  taste.  It  is  difficult  to  imagine  poorer 
designs  than  those  upon  the  shilling  and  six- 
pence, descending  from  a  time  when  art  in 
many  branches  was  at  its  apogee  in  England. 
As  our  architecture  and  art  manufactures  of 
many  kinds  are  regenerated  by  the  efforts  of 
private  persons,  is  it  too  much  to  hope  that  a 
government  department  will  follow  ?  The 
florin  is  indeed  an  immense  advance  upon  the 
shilling,  being  in  some  respects  a  reversion 
to  the  style  of  old  English  money.  A  very 
beautiful  pattern  crown  piece  was  produced 
in  1847,  in  a  somewhat  similar  style,  but  never 
issued.  Mr.  Lowe,  when  Master  of  the  Mint, 
gave  us  back  the  old  George  and  Dragon 
sovereign,  which  is  much  superior  to  the 
shield  and  wreaths.  I  think,  however,  that 
the  time  has  come  for  a  general  improvement 
in  our  coins. 

HISTORICAL   COINS. 

Some  states  have  utilized  their  coins  as 
monuments  of  important  events,  such  as  con- 
quests, jubilees,  the  accession  of  monarchs, 
etc.  The  German  states,  especially  Prussia, 
have  struck  a  long  series  of  beautiful  coins 
down  to  the  Kronung's  Thaler  of  1861,  and 
the  Sieges  Thaler  of  1871.  Some  of  these 
coins  are  at  once  treasured  up  in  cabinets  in 
the  manner  of  medals.  If  it  is  possible  to 
conceive  literature  destroyed,  and  modern 
cities  and  their  monuments  in  ruins  and  de- 
cay, such  medallic  coins  would  become  the 
most  durable  memorials,  and  the  history  of 
the  kings  of  Prussia  would  be  traced  out  by 
future  numismatists  as  that  of  the  great  dy- 
nasties of  Bactria  has  lately  been  recovered. 

In  1842%!.  Antenor  Joly  brought  before 
the  French  legislative  chambers  a  scheme 
for  a  system  of  historical  money,  and  he  re- 
newed his  proposal  in  1852.  M.  Ernest 
Dumas  has  also  suggested  the  issue  of  twen- 
ty-centime bronze  pieces,  which  should  serve 
either  as  money  or  as  historical  medals.  Such 
schemes  have  not  been  carried  out  in  France, 
and  in  England  no  coins  of  the  sort  have 
been  struck.  Except  the  mere  expense  of  a 
new  set  of  dies,  I  see  no  objection  to  the 
issue  of  historical  money. 

THE  ROYAL  ATTRIBUTE  OF  COINING. 
Every  civilized  community  requires  a  sup- 
ply of  well-executed  coins,  and  there  arises 
the  question,  How  shall  this  money  be  pro- 
vided? The  coins  of  each  denomination 
must  contain  exactly  equal  weights  of  fine 
metal,  and  must  bear  an  impress  proving  that 
they  do  so.  Can  we  trust  to  the  ordinary 
competition  of  manufacturers  and  traders  to 
keep  up  a  sufficient  supply  of  such  coins,  just 
as  they  supply  buttons,  or  pins  and  needles  ? 
Or  must  we  establish  a  government  depart- 
ment, under  strict  legislative  control,  to  se- 
cure good  coinage  ? 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


[67    19 


As  almost  every  opinion  finds  some  advo- 
cate, there  are  not  wanting  a  few  who  believe 
that  coinage  should  be  left  to  the  free  action 
of  competition.  Mr.  Herbert  Spencer  es- 
pecially, in  his  "Social  Statics,"  advanced 
the  doctrine  that,  as  we  trust  the  grocer  to 
furnish  us  with  pounds  of  tea,  and  the  baker 
to  send  us  loaves  of  bread,  so  we  might  trust 
II ea ton  and  Sons,  or  some  of  the  other  en- 
terprising firms  of  Birmingham,  to  supply 
us  with  sovereigns  and  shillings  at  their  own 
risk  and  profit.  He  held  that  just  as  people 
^o  by  preference  to  the  grocer  who  sells  good 
tea,  and  to  the  baker  whose  loaves  are  sound 
and  of  full  weight,  so  the  honest  and  suc- 
cessful coiner  would'  gain  possession  of  the 
market,  and  his  money  would  drive  out  in- 
ferior productions. 

Though  I  must  always  deeply  respect  the 
opinions  of  so  profound  a  thinker  as  Mr. 
Spencer,  I  hold  that  in  this  instance  he  has 
pushed  a  general  principle  into  an  exceptional 
case,  where  it  quite  fails.  He  has  overlooked 
the  important  law  of  Gresham  (to  be  explained 
in  the  next  chapter),  that  better  money  can- 
not drive  out  worse.  In  matters  of  currency 
self-interest  acts  in  the  opposite  direction  to 
what  it  does  in  other  affairs,  as  will  be  ex- 
plained, and  if  coining  were  left  free,  those 
who  sold  light  coins  at  reduced  prices  would 
drive  the  best  trade. 

This  conclusion  is  amply  confirmed  by  ex- 
perience ;  for  at  many  times  and  places  coins 
have  been  issued  by  private  manufacturers, 
and  always  with  the  result  of  debasing  the  cur- 
rency. For  a  lor.g  time  the  copper  currency 
of  England  consisted  mainly  of  tradesmen's 
tokens,  which  were  issued  very  light  in  weight 
and  excessive  in  number.  In  Mr.  Smiles's 
"Lives  of  Boulton  and  Watt  "  (page  391), 
there  is  printed  an  interesting  letter,  in 
which  Mr.  Boulton  complains  that  in  his 
journeys  he  received  on  an  average  at  the 
toll-gates  two  counterfeit  pennies  for  one 
true  one.  The  lower  class  of  manufactur- 
ers, he  says,  purchased  copper  coin  to 
the  nominal  value  of  thirty-six  shillings  for 
twenty  shillings  in  silver,  and  distributed 
it  to  their  work-people  in  wages,  so  as  to 
make  a  considerable  profit.  The  multitude 
of  these  depreciated  pieces  in  circulation 
was  so  great,  that  the  magistrates  and  in- 
habitants of  Stockport  held  a  public  meet- 
ing, and  resolved  to  take  no  halfpence  in  fu- 
ture but  those  of  the  Anglesey  Company, 
which  were  of  full  weight.  This  shows,  if 
proof  were  needed,  that  the  separate  action  of 
self-interest  was  inoperative  in  keeping  bad 
coin  out  of  circulation,  and  it  is  not  to  be 
supposed  that  the  public  meeting  could  have 
had  any  sufficient  effect.  In  China  the  cur- 
rent small  money  called  cash  or  /e,  is  com- 
monly manufactured  by  private  coiners,  and 
the  consequence  is  that  the  size,  quality,  and 
value  of  the  coins  have  fallen  very  much. 

In  my  opinion  there  is  nothing  less  fit  to 
be  left  to  the  action  of  competition  than 


money.  In  constitutional  law  the  right  of 
coining  has  always  been  held  to  be  one  of  the 
peculiar  prerogatives  of  the  Crown,  and  it  is 
a  maxim  of  the  civil  law,  that  monetandi  jus 
principum  ossibus  inhosret.  To  the  executive 
government  and  its  scientific  advisers,  who 
have  minutely  inquired  into  the  intricacies  of 
the  subject  of  currency  and  coinage,  the  mat- 
ter had  better  be  left.  It  should  as  far  as 
possible  be  removed  from  the  sphere  of  party 
struggles  or  public  opinion,  and  confided  to 
the  decision  of  experts.  No  doubt,  in  times 
past,  kings  have  been  the  most  notorious 
false  coiners  and  depreciators  of  the  currency, 
but  there  is  no  danger  of  the  like  being  done 
in  modern  times.  The  danger  lies  quite  in. 
the  opposite  direction,  that  popular  govern- 
ments will  not  venture  upon  the  most  obvious 
and  necessary  improvement  of  the  monetary 
system  without  obtaining  a  concurrence  of 
popular  opinion  in  its  favor,  while  the  peo- 
ple, influenced  by  habit,  and  with  little 
knowledge  of  the  subject,  will  never  be  able 
to  agree  upon  the  best  scheme. 


CHAPTER   VIII. 


THE   PRINCIPLES   OF   CIRCULATION. 

Before  proceeding  to  consider  the  actual 
monetary  systems  adopted  by  modern  or 
ancient  nations,  it  is  desirable  to  dwell  for  a 
short  time  upon  the  different  meanings  which 
may  be  attributed  to  the  word  money,  and 
upon  the  natural  principles  which  govern  the 
use  and  circulation  of  coins.  We  must,  in 
the  first  place,  distinguish  three  things 
which,  in  the  practical  working  of  a  currency 
system,  are  often  separate,  namely,  the  actual 
coins  employed,  the  numbers  by  which  they 
are  expressed,  and  the  relation  of  those  num- 
bers to  the  assumed  unit  of  value.  We  must 
further  distinguish  coins  according  as  their 
values  depend  upon  the  metal  they  contain, 
the  metal  for  which  they  can  be  exchanged, 
or  the  other  coins  for  which  they  are  the 
legal  equivalent. 

THE   STANDARD   UNIT   OF  VALUF- 

It  is  essential,  in  the  first  place,  to  decide 
clearly  what  we  mean  by  a  standard  unit  of 
value.  This  must  consist  of  a  fixed  quantity 
of  some  concrete  substance,  defined  by  refer- 
ence to  the  units  of  weight  or  space.  Value 
may  seem  to  some  people  to  be  a  purely 
mental  phenomenon,  and  a  pound  would 
then  have  to  be  defined,  as  Lord  Castlereagh 
asserted,  by  a  sense  of  value.  But  we  might 
as  well  define  a  yard  by  a  sense  of  length,  or 
a  grain  by  a  sense  of  weight.  Just  as  every 
quantity  in  physical  science  is  defined  by 
reference  to  some  concrete  standard  speci- 
men, so  if  we  are  to  measure  and  express; 
value  at  all,  we  must  fix  upon  definite 


20  £68] 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


tities  of  one  or  more  definite  and  unchange- 
able commodities  for  the  purpose. 

The  expression,  standard  unit  of  value, 
will  indeed  be  almost  inevitably  misunder- 
stood as  implying1  the  existence  of  something 
of  fixed  value.  As  we  have  seen,  however, 
(Chapter  I.), value  merely  expresses  the  essen- 
tially variable  ratio  in  which  two  commodities 
exchange,  so  that  there  is  no  reason  to  sup- 
pose that  any  substance  does  for  two  days 
together  retain  the  same  value.  All  that  a 
standaul  of  value  means  is,  that  some  uni- 
form unchangeable  substance  is  chosen,  in 
terms  of  which  all  ratios  of  exchange  may  be 
expressed  and  calculated,  without  any  regard 
whatever  to  the  feelings  or  mental  phe- 
nomena which  the  commodities  produce  in 
men.  For  reasons  already  stated,  one  or  the 
other  of  the  metals,  gold,  silver,  or  copper, 
has  usually  been  considered  most  suitable 
for  constituting  the  standard  substance. 

The  absolute  weight  or  magnitude  of  the 
unit  of  money  is  a  matter  of  little  or  no  im- 
portance, provided  that  all  people  agree  upon 
the  same  unit,  and  that  it  be  permanently  and 
exactly  defined,  and  afterward  adhered  to. 
Before  the  English  yard  was  fixed,  it  would 
not  have  mattered  whether  it  was  a  few 
inches  longer  or  shorter;  it  does  not  matter, 
indeed,  whether  the  inch,  the  foot,  the  fur- 
long, or  the  mile  is  the  unit,  provided  that 
one  of  them  is  definitely  fixed,  and  the  others 
referred  to  it  by  known  ratios.  So,  it  is 
really  indifferent  whether  we  regard  the 
pound  troy  of  standard  gold,  or  the  ounce, 
or  the  fixed  number  of  grains  in  the  sover- 
eign as  our  standard.  It  is  only  requisite 
that  every  contract  expressed  in  money  shall 
enable  us  to  ascertain  exactly  how  much  stand- 
ard gold  is  due  from  one  person  to  another. 

M.  Chevalier  and  some  other  continental 
economists  have  argued  elaborately  in  favor  of 
a  universal  standard  unit  of  value,  coinciding 
with  the  metric  system  of  weights.  They  wish 
the  unit  of  value  to  be  ten  grains  of  gold 
exactly,  and  seem  to  think  that  there  is  some 
magical  efficacy  in  the  correspondence  of 
money  and  weights.  This  correspondence 
might  perhaps  be  a  slight  convenience  to 
those  bullion  dealers  who  have  to  calculate 
the  metallic  value  of  coins  before  melting  or 
exporting  them,  or  to  those  mint  officials 
who  have  to  adjust  and  test  the  weights  of 
coins  ;  to  all  other  persons  it  would  be  a 
matter  of  complete  indifference.  Those  who 
use  coins  in  ordinary  business  need  never 
inquire  how  much  metal  they  contain.  Pro- 
bably not  one  person  in  ten  thousand  in  this 
kingdom  knows,  or  need  know,  that  a  sov- 
ereign should  contain  123.27447  grains  of 
standard  gold.  Besides,  if  we  agree  to  ac- 
cept a  precise  metrical  quantity  of  one  metal 
as  our  standard,  the  weights  of  the  coins 
composed  of  other  metals  will  be  complicated 
fractional  amounts,  to  be  determined  with 
reference  to  the  accidental  market  value  of 
the  metals. 


All  we  can  say,  then,  is  that  the  standard 
unit  of  value  is  some  entirely  arbitrary  weight 
of  the  standard  metal,  the  exact  amount  of 
which,  being  a  matter  of  indifference  on  gen- 
eral grounds,  should  be  fixed  as  seems  most 
convenient  in  reference  to  the  habits  of  na- 
tions or  other  accidental  circumstances. 

COIN,    MONEY    OF    ACCOUNT,    AND    UNIT    OF 
VALUE. 

It  is  desirable  to  distinguish  clearly  be- 
tween three  things  which,  although  definitely 
related  to  each  other,  need  not  be  identical. 
The  unit  of  value,  or  standard  weight  of  the 
selected  metal,  is  not  necessarily  made  into  a 
coin.  It  may  be  a  quantity  too  great  or  too 
small  for  coining.  All  that  is  requisite  is 
that  the  current  coins  shall  be  multiples  or 
submultiples  of  the  unit,  or  easily  expressible 
in  terms  of  the  unit.  Nor  is  it  even  re- 
quisite that  the  numbers  in  which  we  express 
value  should  be  numbers  of  coins,  or  num- 
bers of  units  of  value.  The  money  of  ac- 
•ount,  as  it  is  called,  may  differ  both  from 
the  current  money  and  the  standard  money. 
This  is  well  illustrated  in  the  Anglo-Saxon 
system  of  currency.  The  unit  of  value  was 
the  Saxon  pound  of  standard  silver,  which 
was  far  too  large  to  be  coined.  The  only 
coins  issued  in  any  considerable  quantity  by 
the  Anglo-Saxon  kings,  were  silver  pennies 
and  a  few  halfpennies  ;  yet  the  usual  money 
of  account  was  the  shilling,  which,  after 
varying  from  four  to  five  pence,  was  fixed 

•  William  I.  at  twelve  pence,  as  it  has  ever 
since  continued.  No  coin  called  a  shilling 
was  issued  before  the  reign  of  Henry  VII. 
Though  the  shilling  has  survived,  other 
moneys  of  account  have  been  forgotten,  as, 
[or  instance,  the  mancus,  which  was  equal  to 
:hirty  pennies,  or  six  shillings  of  five  pence 
each.  The  mark,  the  ora,  and  the  thrimsa 
were  other  moneys  of  account  used  by  the 
Anglo-Saxons. 

In  our  present  English  system  the  three 
moneys  happen  to  coincide,  which  is  doubt- 
ess  a  matter  of  some  convenience.  The 
sovereign  is  at  once  the  principal  coin,  the 
unit  of  value,  and  the  money  of  account  in 
all  the  larger  transactions,  although  in  the 
expression  of  smaller  sums  the  shilling  is 
yet  preferred.  In  France  at  the  present 
ime  the  money  of  account  and  the  unit  of 
value  is  the  franc  in  gold ;  but  as  this  weighs 
only  0.3226  grams,  or  about  five  grains,  it  is 
coined  only  in  five,  ten,  and  twenty-franc 
jold  pieces,  with  subsidiary  silver  coins.  In 
Russia,  before  the  time  of  Peter  the  Great, 
the  rouble  was  an  imaginary  money  of  ac- 
count, consisting  of  one  hundred  copper  co- 
pecks. 

When  Montesquieu  affirmed  that  the  ne- 
groes on  the  West  Coast  of  Africa  had  a 
purely  ideal  sign  of  value  called  a  macute,  he 
misunderstood  the  nature  of  money  of  ac- 
count. The  macute  served  with  the  negroes 
as  the  name  for  a  definite,  though  probably 


MONEY  AND  THE  MECHANISM    JF  EXCHANGE. 


[69]  21 


a  variable,  number  of  cowry  sheik,  the  num- 
ber being  at  one  time  2,000.  The  macuie 
has  also  been  coined  in  silver  pieces  of  eight, 
six,  and  four  macutes,  struck  by  the  Portu- 
guese for  use  in  their  colonies,  the  macute 
being  worth  about  two  and  three- fourth  pen- 
nies. 

When  the  currency  of  a  country  undergoes 
a  change,  the  units  of  coinage,  account  and 
value  are  likely  to  become  separated.  Some- 
times a  new  system  of  accounts  is  applied  to 
an  old  coinage,  as  in  Norway  at  the  present 
time.  The  Stockholm  government  is  endeav- 
oring to  introduce  the  Swedish  decimal  sys- 
tem of  currency,  and  some  merchants  are 
said  alreadv  to  keep  their  accounts  in  kro- 
ner and  ore,  although  the  money  in  cir- 
culation consists  almost  wholly  of  the  old 
skillings  and  the  paper  specie-dalers.  On 
the  other  hand,  the  coinage  is  sometimes 
changed,  and  yet  the  old  method  of  ac- 
count retained,  especially  as  regards  for- 
eign transactions.  Thus  the  rates  of  for 
eign  exchange  between  the  United  States 
and  England  were,  until  last  year,  quoted 
in  terms  of  a  dollar  valued  at  four  shil- 
lings and  sixpence,  in  accordance  with  a 
law  of  1789.  This  rate  seems  to  have  been 
the  traditional  par  of  exchange  of  the  Mexi- 
can dollar,  and  it  was  still  retained  even 
when  the  American  dollar  had  been  coined 
so  as  to  be  worth  only  49*316  English  pence. 

There  are  two  causes  which  have  often  led 
to  a  difference  between  coinage  and  money 
of  account.  The  coins  may,  by  legitimate 
abrasion,  or  by  fraudulent  clipping  and 
sweating,  become  much  reduced  below  their 
proper  weights,  yet  an  agio,  or  allowance, 
being  made  for  the  average  depreciation,  the 
old  standard  of  value  and  money  of  ac- 
count may  be  retained,  as  was  the  case 
in  Amsterdam,  Hamburg,  and  other  towns. 
When  a  depreciated  currency  is  issued  in  a 
country,  the  money  of  account  may  either 
change  with  it  or  remain  as  before;  and  it  is 
an  exceedingly  difficult,  if  not  insoluble, 
problem  to  decide  whether,  in  particular  pe- 
riods of  English  history,  prices  were  ex- 
pressed in  the  new  depreciated  or  the  old 
good  money.  Professor  J.  E.  T.  Rogers 
has  pointed  out,  in  his  admirable  "  History 
of  Agriculture  and  Prices  in  England," 
printed  by  the  Clarendon  Press  (vol.  i.,  p. 
175),  that,  in  the  fourteenth  century,  the 
coinage,  though  apparently  passed  by  tale, 
was  often  weighed.  In  the  ancient  college 
accounts  which  he  has  investigated,  he  finds 
charges  entered  both  for  the  cost  of  scales 
to  make  the  weighings,  and  for  the  deficiency 
of  weight  of  the  coins. 

In  many  countries,  even  at  the  present  day, 
the  circulating  medium  consists  not  of  any 
one  simple  and  well-connected  series  of  coins, 
but  of  a  miscellaneous  collection  of  coins  of 
various  sizes  and  values,  imported  from  for- 
eign states.  In  such  cases  the  money  of  ac- 
count must  necessarily  differ  from  the  mass 


of  the  coins,  of  which  the  value  is  usually 
estimated  by  a  tariff  expressed  in  terms  of 
the  money  of  account.  In  the  German 
states,  a  few  years  ago,  French  and  English 
i;oid  was  freely  accepted  in  this  manner.  In 
Canada  there  was  in  former  years  an  intricate 
confusion  of  monetary  systems.  Many  spe- 
cies of  foreign  coins,  chiefly  varieties  of  the 
dollar,  were  in  circulation.  There  were  also 
wo  separate  moneys  of  account,  namely,  the 
Halifax  Currency  Pound,  divided  into  twenty 
shillings  of  twenty  pence  each,  and  defined 
by  the  fact  that  si'xty  such  pence  were  equal 
to  one  dollar;  and,  secondly,  the  Halifax 
Sterling  Currency.  The  latter  is  still  em- 
ployed to  express  the  foreign  exchanges. 
The  present  monetary  unit  of  Canada  is  the 
dollar,  and  the  currency  consists  of  bank- 
notes, with  silver  coins  of  50,  25, ,20,  10,  and 
5  cents;  but  English  sovereigns  and  half  sov- 
ereigns are  also  in  circulation. 

STANDARD  AND  TOKEN  MONEY. 

We  must  distinguish  between  coins  ac- 
cording as  they  serve  for  standard  money  or 
for  token  money.  A  standard  coin  is  one  of 
which  the  value  in  exchange  depends  solely 
upon  the  value  of  the  material  contained  in 
it.  The  stamp  serves  as  4  mere  indication 
and  guarantee  oC  thi  quantity  of  fine  metal. 
We  may  treat  such  coins  as  bullion,  and  melt 
them  up  or  export  them  to  countries  where 
they  are  not  legally  current;  yet  the  value  of 
the  metal,  being  independent  of  legislation, 
will  everywhere  be  recognized. 

Token  coins,  on  the  contrary,  are  defined 
in  value  by  the  fact  that  they  can,  by  force 
of  law  or  custom,  be  exchanged  in  a  certain 
fixed  ratio  for  standard  coins.  The  metal 
contained  in  a  token  coin  has  of  course  a  cer- 
tain value;  but  it  may  be  less  than  the  legal 
value  in  almost  any  degree.  In  our  English 
silver  coinage  the  difference  is  from  9  to  12 
per  cent. ,  according  to  the  market  price  of  sil- 
ver; in  our  bronze  coinage  the  difference  is 
75  per  cent.  The  metal  contained  in  the 
French  bronze  coins  is  in  like  manner  equal 
in  value  to  little  more  than  one-quarter  of  the 
current  value.  In  many  cases  the  difference 
has  been  far  greater;  as,  for  instance,  in 
some  of  the  old  kreutzer  pieces  lately  current 
in  the  German  states.  Woods 's  halfpence, 
which  at  one  time  created  so  much  discontent 
in  Ireland,  or  the  small  money  previously 
issued  by  James  II.  in  Ireland,  are  extreme 
instances  of  depreciated  token  money. 

METALLIC    AND    NOMINAL    VALUES  OF   COIN. 

It  has  been  usual  to  call  the  value  of  the 
metal  contained  in  a  coin  the  intrinsic  value 
of  the  coin;  but  this  use  of  the  word  intrinsic 
is  likely  to  give  rise  to  fallacious  notions  con- 
cerning the  nature  of  value;  which  is  never 
an  intrinsic  property,  or  existence,  but  mere- 
ly a  circumstance,  or  external  relation  (see 
Chapter  II.).  To  avoid  any  chance  of  am- 
biguity, I  shall  substitute  the  expression,  me- 


22  [70] 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


tallic  value,  and  I  shall  distinguish  this  from 
the  nominal,  customary,  or  legal  value,  at 
which  a  coin  actually  does,  or  is  by  law  re- 
quired to,  exchange  for  other  coins. 

There  are  two  ways  in  which  the  metallic 
value  of  a  coin  may  be  reduced  below  its 
nominal  value,  namely,  by  reducing  either 
the  weight  or  the  fineness  of  the  metal.  En- 
glish silver  coin  is  still  maintained  at  the 
"ancient  right  standard"  of  n  oz.  2  dwts. 
in  the  troy  pound,  which  has  existed  from 
time  immemorial.  By  the  Act  of  1816  the 
silver  coins  which  had  previously  been,  in 
theory  at  least,  standard  money,  were  re- 
duced in  weight  by  6  per  cent. ,  and  thus  ren- 
dered token  money,  which  they  still  continue 
to  be.  In  France  and  other  countries  be- 
longing to  the  Monetary  Convention,  the 
smaller  silver  coins  of  two  francs,  one  franc, 
and  fifty  centimes,  have  been  converted  into 
tokens  by  reducing  the  fineness  of  the  silver 
from  900  to  835  parts  in  1000.  It  does  not 
seem  to  be  a  matter  of  any  importance  which 
mode  is  adopted;  but  the  English  mode,  so 
long  as  it  does  not  render  the  coins  incon- 
veniently small,  is  perhaps  slightly  the  bet- 
ter, because  some  persons  can  satisfy  them- 
selves as  to  the  weight  of  a  coin,  but  none 
are  able  to  test  its  fineness,  unless  they  are 
professional  assayers. 

It  need  hardly  be  stated  that  coins  which 
circulate  by  law  in  one  country  as  tokens  may 
be  accepted  in  other  countries  at  their  me- 
tallic value. 

LEGAL   TENDER. 

Money  must  further  be  distinguished  ac- 
cording as  it  is  or  is  not  legal  tender,  or  has  or 
has  not  what  the  French  call  cours  /one.  By 
legal  tender  is  denoted  such  money  as  a  cred- 
itor is  obliged  to  receive  in  requital  of  a 
debt  expressed  in  terms  of  money  of  the  realm. 
One  great  object  of  legislation  is  to  prevent 
uncertainty  in  the  interpretation  of  contracts, 
and  accordingly  the  Coinage  Act  defines  pre- 
cisely what  will  constitute  a  legal  offer  of 
payment  on  the  part  of  a  debtor,  as  regards 
a  money  debt.  If  a  debtor  tender  to  his 
creditor  the  amount  of  a  debt  due  in  legal 
tender  money,  and  it  be  refused,  the  creditor 
may  indeed  apply  for  it  or  sue  for  it  afterward, 
but  the  costs  of  the  action  will  be  thrown 
upon  him. 

But  there  seems  to  be  no  legal  necessity 
that  exchanges  or  contracts  shall  be  made  in 
money  of  the  realm.  At  common  law,  con- 
tracts for  he  direct  barter  of  two  commodi- 
ties, or  for  purchase  and  sale  in  terms  of  any 
kind  of  money,  will  be  valid,  provided  it  is 
clear  what  the  terms  of  the  contract  mean. 
Accordingly,  the  sixth  section  of  the  Coin- 
age Act  (33  Viet.  c.  10),  while  enacting  that 
every  contract,  sale,  payment,  bill,  note, 
transaction,  or  matter  relating  to  money, 
shall  be  made  or  done  according  to  the 
coins  which  are  current  and  legal  tender  in 
pursuance  of  this  Act,  yet  adds,  "  unless  the 


same  be  made,  executed,  entered  \\  ^  *ne 
or  had,  according  to  the  currency  a(  «ome 
British  possession  or  some  foreign  *tate." 

If  I  understand  the  matter  aright,  then, 
every  person  is  at  liberty  to  buy,  sell,  or 
exchange  in  terms  of  any  money  or  commod- 
ity whatsoever  which  he  prefers  ;  and  the 
fact  that  certain  coins,  up  to  certain  limits, 
are  legal  tender,  only  means  that  the  state 
provides  a  definite  medium  of  exchange,  and 
defines  precisely  what  that  is.  The  Act 
requires  that  English  money  shall  be  the 
money  issued  by  the  mint  in  accordance  with 
the  te'rms  of  the  Act.  Of  course  it  remains 
quite  open  to  a  creditor  to  receive  payment 
in  coins  which  are  not  legal  tender,  if  he  like 
to  do  so,  and  I  presume  there  would  be 
nothing  to  prevent  him  entering  into  a  con- 
tract to  that  effect.  If  a  man  contracted  to 
sell  goods  to  the  extent  of  ^100,  and  to  re- 
ceive payment  in  bronze  pence  and  half, 
pence,  it  would  no  doubt  be  a  valid  contract, 
although  no  single  quantity  of  pence  exceed- 
ing twelve  pence  is  a  legal  tender. 

The  exact  meaning  of  the  term,  legal  ten- 
der, may  of  course  vary  from  country  to  coun- 
try, and  the  above  remarks  apply  only  to 
countries  under  the  English  law. 

THE    FORCE    OF     HABIT    IN    THE     CIRCULA- 
TION  OF   MONEY. 

No  one  can  possibly  understand  many 
social  phenomena  unless  he  constantly  bears 
in  mind  the  force  of  habit  and  social  conven- 
tion. This  is  strikingly  true  in  our  subject 
of  money.  Over  and  over  again  in  the  course 
of  history,  powerful  rulers  have  endeavored 
to  put  new  coins  into  circulation  or  to  with- 
draw old  ones ;  but  the  instincts  of  self- 
interest  or  habit  in  the  people  have  been  too 
strong  for  laws  and  penalties.  Though  in 
particular  instances  it  may  be  difficult  to  ex- 
plain occurrences  which  happen  in  the  cir- 
culation of  coins,  yet  a  close  analysis  of  the 
character  of  those  who  handle  money,  and 
their  motives  for  holding  it  or  paying  it  away, 
will  throw  much  light  upon  the  subject. 

We  must  notice,  in  the  first  place,  that  the 
great  mass  of  the  population  who  hold  coins 
have  no  theories,  or  general  information 
whatever,  upon  the  subject  of  money.  They 
are  guided  entirely  by  popular  report  and 
tradition.  The  sole  question  with  them  on 
receiving  a  coin  is  whether  similar  coins  have 
been  readily  accepted  by  other  people.  Thus 
in  the  remote  parts  of  Norway  at  the  present 
time,  the  old  paper  daler  notes  are  preferred 
to  the  beautiful  new  twenty-kroner  gold 
pieces.  By  far  the  greater  number  of  the 
people  possess  no  means  of  learning  the  me- 
tallic, or  even  the  legal  value,  of  an  unfamiliar 
coin.  Few  people  have  scales  and  weights 
suitable  for  weighing  a  coin,  and  no  one  but 
an  assayer  or  analytical  chemist  can  decide 
upon  its  fineness.  Many  a  traveler  who  has 
carried  good  new  coin  into  a  country  where 
i  t  happened  to  be  strange,  has  had  to  suffer 


MONEY  AND  THE  MECHANISM  UF  EXCHANGE. 


[71]  23 


a  loss  in  paying  it  away.  When  our  bronze 
pence  were  quite  a  novel iv,  I  happened  to 
take  some  with  me  into  a  remote  part  of 
North  Wales,  and  they  were  rejected. 

People  in  general  accept  coin  simply  on 
the  ground  of  its  familiar  appearance.  So 
entirely  is  this  the  case  among  very  ignorant 
populations,  that  it  has  often  been  found 
desirable  to  maintain  unchanged  the  impress 
on  successive  issues  of  coins.  In  many  cases 
coins  have  been  struck  for  this  purpose  with 
the  date  of  a  long  past  year,  or  even  the 
effigy  of  a  dead  sovereign.  The  Maria 
Theresa  dollar  is  still  coined  by  the  Austrian 
mint,  with  exactly  the  same  design  and  date 
as  when  first  issued  in  1780,  because  it  is  the 
favorite  coin  in  some  of  the  states  of  North 
Africa,  and  various  parts  of  the  Levant.  The 
British  Government,  when  undertaking  the 
Abyssinian  expedition,  procured  a  large 
stock  of  these  coins  for  paying  the  natives. 
In  the  same  way  Mexican  dollars  are  usually 
worth  rather  more  than  silver  bullion,  be- 
cause of  their  easy  currency  in  the  East. 

To  the  supremacy  of  habit,  and  the  ab- 
sence of  means  of  estimating  the  real  value 
of  coin,  is  obviously  due  the  depreciation 
which  currencies  have  undergone.  False 
coiners  and  kings  alike  find  that,  if  they  can 
only  make  new  coins  look  and  feel  exactly 
like  old  coins,  the  people  will  accept  depre- 
ciated money  without  question. 

The  annals  of  coinage,  in  this  and  all 
other  countries,  are  little  more  than  a  monot- 
onous repetition  of  depreciated  issues  both 
public  and  private,  varied  by  occasional  mer- 
itorious, but  often  unsuccessful,  efforts,  to 
restore  the  standard  of  the  currency.  A 
curious  instance  of  successive  attempts  to 
beguile  a  people  is  found  in  certain  Roman 
denarii  of  the  Consular  times.  False  coiners 
having  issued  plated  denarii  among  the  sub 
ject  Germans,  the  people  appeared  to  have 
notched  them  with  files  to  test  their  genuine- 
ness. The  Germans  having  thus  become 
accustomed  to  see  genuine  notched  coins,  the 
Roman  government  found  it  desirable  to 
issue  new  coins  notched  in  a  similar  manner. 
But  the  forgers  were  not  to  be  beaten.  They 
issued  plated  denarii  with  the  notches  all 
complete,  apparently  displaying  good  metal 
within;  and  notched  false  coins  of  this  kind 
exist  to  the  present  day  in  numismatic  cab- 
inets. 

GRESHAM'S  LAW. 

Though  the  public  generally  do  not  dis- 
criminate between  coins  and  coins,  provided 
there  is  an  apparent  similarity,  a  small  class 
of  money-changers,  bullion-dealers,  bankers, 
or  goldsmiths  make  it  their  business  to  be 
acquainted  with  such  differences,  and  know 
how  to  derive  a  profit  from  them.  These  are 
the  people  who  frequently  itncoin  money, 
either  by  melting  it,  or  by  exporting  it  to  coun- 
tries where  it  is  sooner  or  later  melted.  Some 
coins  are  sunk  in  the  sea  or  lost,  and  some 


are  carried  abroad  by  emigrants  and  travelers 
who  do  not  look  closely  to  the  metallic  value 
of  the  money.  But  by  far  the  greatest  part 
of  the  standard  coinage  is  removed  from  cir- 
culation by  people  who  know  that  they  shall 
gain  by  choosing  for  this  purpose  the  new 
heavy  coins  most  recently  issued  from  the 
mint.  Hence  arises  the  practice,  extensively 
carried  on  in  the  present  day  in  England,  of 
picking  and  culling,  or,  as  another  technical 
expression  is,  garbling  the  coinage,  devoting 
the  good  new  coins  to  the  melting-pot,  and 
passing  the  old  worn  coins  into  circulation 
again  on  every  suitable  opportunity. 

From  these  considerations  we  readily  learn- 
the  truth  and  importance  of  a  general  law  or 
principle  concerning  the  circulation  of  money, 
which  Mr.  Macleod  has  very  appropriately 
named  the  Law  or  Theorem  of  Gresham, 
after  Sir  Thomas  Gresham,  who  clearly  per- 
ceived its  truth  three  centuries  ago.  This 
law,  briefly  expressed,  is  that  bad  money  drive? 
out  good  money,  but  that  good  money  cannot 
drive  out  bad  money.  At  first  sight  there 
may  seem  to  be  something  paradoxical  in 
the  fact,  that  when  beautiful  new  coins  of 
full  weight  are  issued  from  the  mint,  the  peo- 
ple still  continue  to  circulate,  in  preference, 
the  old  depreciated  ones.  Many  well  inten- 
tioned  efforts  to  reform  a  currency  have  thus 
been  frustrated,  to  the  great  cost  of  states, 
and  the  perplexity  of  statesmen  who  had  not 
studied  the  principles  of  monetary  science. 

In  all  other  matters  everybody  is  led  by 
self-interest  to  choose  the  better  and  reject 
the  worse;  but  in  the  case  of  money,  it  would 
seem  as  if  they  paradoxically  retain  the  worse 
and  get  rid  of  the  better.  The  explanation 
is  very  simple.  The  people,  as  a  general 
rule,  do  not  reject  the  better,  but  pass  from 
hand  to  hand  indifferently  the  heavy  and  the 
light  coins,  because  their  only  use  for  the 
coin  is  as  a  medium  of  exchange.  It  is  those 
who  are  going  to  melt,  export,  hoard,  or  dis- 
solve the  coins  of  the  realm,  or  convert  them 
into  jewelry  and  gold  leaf,  who  carefully  se- 
lect for  their  purposes  the  new  heavy  coins. 

Gresham's  law  alone  furnishes  a  sufficient 
refutation  of  Mr.  Herbert  Spencer's  doctrine, 
already  noticed  (Chapter  VII),  that  money 
ought  to  be  provided  by  private  manufactur- 
ers. People  who  want  furniture,  or  books,  or 
clothes,  may  be  trusted  to  select  the  best 
which  they  can  afford,  because  they  are  go- 
ing to  keep  and  use  these  articles;  but  with 
money  it  is  just  the  opposite.  Money  is 
made  to  go.  They  want  coin,  not  to  keep  it 
in  their  own  pockets,  but  to  pass  it  off  into 
their  neighbors'  pockets;  and'  the  worse  the 
money  which  they  can  get  their  neigh- 
bors to  accept,  the  greater  the  profit  to  them- 
selves. Thu»  there  is  a  natural  tendency  to 
the  depreciation  of  the  metallic  currency, 
vihich  can  only  be  prevented  by  the  constant 
supervision  of  the  state. 

From  Gresham's  law  we  may  infer  the  ne- 
cessity of  two  precantions  in  the  regulation 


24  [72] 


MONEV  AND  THE  MECHANISM  OF  EXCHANGE. 


of  the  currency.  In  the  first  place,  the  stand- 
ard coins,  as  issued  from  the  mint,  should  be 
as  nearly  as  possible  of  the  standard  weight, 
otherwise  the  difference  will  form  a  profit  for 
the  bullion  broker  and  exporter.  In  the  sec- 
ond place,  adequate  measures  must  be  taken 
for  withdrawing  from  circulation  all  coins 
which  are  worn  below  the  least  legal  weight, 
otherwise  they  will  continue  to  circulate  as 
token  c«ins  for  an  indefinite  length  of  time. 
All  commerce  consists  in  the  exchange  of 
commodities  of  equal  value,  and  the  princi- 
pal money  should  consist  of  pieces  of  metal 
so  nearly  equal  in  metallic  contents,  that  all 
persons,  including  bullion  dealers,  bankers, 
and  other  professed  dealers  in  money,  will 
indifferently  substitute  one  coin  for  another. 
But  it  is  obvious  that  these  remarks  do  not 
ripply  to  coins  intended  to  serve  as  tokens, 
since  the  current  value  of  tokens  exceeds 
their  metallic  value,  and  every  one  who  uses 
them  otherwise  than  in  ordinary  circulation 
will  lose  the  difference.  Hence  the  weight  of 
a  token  coin  is  comparatively  a  matter  of  in- 
difference, so  long  as  people  will  receive 
it,  and  the  deficiency  of  weight  is  not  too 
great  a  temptation  to  the  false  coiner. 

In  England  at  the  present  day  the  force  of 
habit,  and  the  absence  of  means  of  discrim- 
ination, lead  to  the  depreciation  of  our  gold 
standard  coinage  by  abrasion.  Only  while  a 
sovereign  exceeds  122 '5  grains  in  weight  is 
it  legally  a  sovereign ;  but  people  go  on  pay- 
ing and  receiving  indifferently,  in  ordinary 
trade,  sovereigns  of  which  the  metallic  values 
differ  two  pence  or  four  pence,  and  some- 
times six  pence  or  eight  pence.  Every 
standard  coin  thus  tends  to  degenerate  into 
a  token  coin,  and  such  a  coin  can  only  be 
"Withdrawn  from  circulation  by  the  state. 

EXTENSION   OF  GRESHAM's  LAW. 

Gresham's  remarks  concerning  the  inabil- 
ity of  good  money  to  drive  out  bad  money, 
only  referred  to  moneys  of  one  kind  of  metal, 
but  the  same  principle  applies  to  the  rela- 
tions of  all  kinds  of  money,  in  the  same  cir- 
culation. Gold  compared  with  silver,  or 
silver  with  copper,  or  paper  compared  with 
gold,  are  subject  to  the  same  law  that  the 
relatively  cheaper  medium  of  exchange  will 
be  retained  in  circulation  and  the  relatively 
clearer  will  disappear.  The  most  extreme 
instance  which  has  ever  occurred  was  in  the 
case  of  the  Japanese  currency.  At  the  time 
of  the  treaty  of  1858,  between  Great  Britain, 
the  United  States,  and  Japan,  which  par- 
tially opened  up  the  last  country  to  European 
traders,  a  very  curious  system  of  currency 
existed  in  Japan.  The  most  valuable  Jap- 
anese coin  was  the  kobang,  consisting  of  a 
thin  oval  disk  of  gold  about  two  inches  long, 
and  one  and  one-fourth  inches  wide,  weighing 
two  hundred  grains,  and  ornamented  in  a 
very  primitive  manner.  Tt  was  passing  cur- 
rent in  the  towns  of  Japan  for  four  silver 
itaebus,  but  was  worth  in  English  money 


about  eighteen  shillings,  five  pence,  whereas 
the  silver  itzebu  was  equal  only  to  about  one 
shilling,  four  pence.  Thus  the  Japanese 
weie  estimating  their  gold  money  at  only 
about  one-third  of  its  value,  as  estimated  ac- 
cording to  the  relative  values  of  the  metals 
in  other  parts  of  the  world.  The  earliest 
European  traders  enjoyed  a  rare  opportunity 
for  making  profit  By  buying  up  the  ko- 
bangs  at  the  native  rating  they  trebled  then 
money,  until  the  natives,  perceiving  what 
was  being  done,  withdrew  from  circulation 
the  remainder  of  the  gold.  A  complete  re- 
form of  the  Japanese  currency  is  now  being 
carried  out,  the  English  mint  at  Hong  Kong 
having  been  purchased  by  the  Japanese  gov- 
ernment. 

What  happened  in  an  extreme  degree  in 
Japan  has  often  happened  in  England  and 
other  European  countries,  in  a  less  degree. 
If  the  ratio  of  gold  and  silver  in  the  coinage, 
as  legally  current,  differs  only  one  or  two 
percent,  from  the  commercial  ratio,  it  may  be- 
come profitable  to  export  the  one  metal  rather 
than  the  other,  and  in  this  way,  as  we  shall 
see,  the  main  part  of  the  currency  of  France 
was  changed  from  silver  into  gold  between 
1849  and  1869.  In  fact  the  character  of  the 
coinage  of  most  nations  has  been  determined 
in  a  similar  manner,  and  England  and  the 
United  States  were  thus  led  to  adopt  a  prin- 
cipal gold  currency.  There  is  every  rtason 
to  believe  that  in  ancient  Rome,  both  in  the 
time  of  the  Republic  and  of  the  Empire,  great 
difficulties  were  encountered  in  regulating  the 
currency  of  silver  alongside  of  copper,  and  the 
perplexity  became  worse  when  gold  coin  was 
introduced. 


CHAPTER  IX. 


SYSTEMS    OF    METALLIC    MONEY. 

We  are  now  in  a  position  to  analyse  the 
construction  of  the  various  systems  of  me- 
tallic money  which  have  existed,  or  do  exist, 
or  which  might  be  conceived  to  exist.  The 
systems  actually  brought  into  operation  are 
more  numerous  than  is  commonly  supposed, 
and  I  have  nowhere  met  with  an  adequate 
classification  of  them.  M.  Courcelle-Seneuil, 
indeed,  has  satisfactorily  described  some  of 
the  principal  systems,  and  MM.  Chevalier, 
Gamier,  and  other  writers,  both  Continental 
and  English,  have  given  other  brief  classifi- 
cations. But  we  must  now  take  a  compre- 
hensive view  of  the  possible  ways  in  which 
two,  three,  or  more  metals  may  be  employed 
in  the  construction  of  a  more  or  less  useful 
monetary  system. 

There  seem  to  be  five  distinct  modes  in 
which  a  government  may  deal  with  metallic 
money. 

i.  It  may  confine  itself  to  providing  a  sys- 
tem of  weights  and  measures,  and  may  then 


UNIVERSITY 

o» 

MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


78]  g,  ' 


allow  the  precious  metals  to  be  passed  about 
frcni  hand  to  hand,  like.:  other  commodities, 
in  terms  of  the  national  weights  and  meas- 
ures, ami  in  the  form  which  individuals  find 
to  be  the  most  convenient.  This  we  may  call 
the  system  of  currency  by  weight. 

2.  To  save  the  trouble  of  frequent  weigh- 
.nd   the   uncertainty  of  fineness  of  the 

metal,  it  may  coin  one  or  more  metals  into 
pieces  of  certain  specified  weights  and  fine- 
ness, and  may  afterward  allow  the  public  to 
make  their  contracts  and  sales  in  one  or  other 
kind  of  coin,  as  they  deem  expedient.  This 
may  be  described  as  the  system  of  unrestrict- 
ed currency  bv  talc. 

3.  To  prevent  misunderstanding,  the  gov- 
ernment, while  emitting  various  coins  in  vari- 
ous metals,  may  ordain  that  all  contracts  ex- 
pressed in  money  of  the  realm  shall,  in  the 
absence  of  express  provision  to  the  contrary, 
betaken  to  mean  money  of  one  kind  of  metal, 
specially  named,    while  other  coin  shall  be 
left  to  circulate  at  varying  market  rates  com- 
pared with  this  principal  kind  of  coinage. 
This  is  the  single  legal  tender  system. 

4.  The  government  may  emit  coins  of  two 
or  more  kinds  of  metal,  and  enact  that  money 
contracts  may  be  discharged  in  one  or  other 
kind,  at  certain  rates  fixed  by  law.     This  is 
the  multiple  legal  tender  system, 

5.  While  maintaining  one  kind  of  coin  as 
the  principal  legal  tender,  in  which  all  large 
money  contracts  must  be  fulfilled,  coins  of 
other  kinds  of  metal  may  be  ordered  to  be 
received  in  limited  quantities,  as  equivalent 
to  the  principal  coin.    For  this  the  name  com- 
posite legal  tender  system  may  be  proposed. 

4tfM*PC*   Iff   WEIGHT. 

The  order  in  which  I  have  enumerated  the 
principal  systems  of  metallic  money,  is  not 
only  the  logical  order,  but  it  is  the  historical 
order  in  which  the  systems  have,  for  the 
most  part  been  introduced.  There  is  over- 
whelming evidence  to  prove  that  simple  cur- 
rency by  weight  is  the  primitive  system.  Be- 
fore the  invention  of  the  balance,  lumps  and 
grains  were  no  doubt  exchanged  according  to 
a  rude  estimation  of  their  bulk  or  weight; 
but  afterward  the  balance  became  a  necessary 
instrument  in  all  important  transactions.  In 
the  Old  Testament  we  find  several  statements 
clearly  implying  that  the  ancient  Hebrews 
used  to  pass  money  by  weight.  In  Genesis 
(xxiii.  16)  Abraham  is  represented  as  weigh- 
ing out  to  Ephron  "four  hundred  shekels  of 
silver,  current  money  with  the  merchant," 
but  the  silver  in  question  is  believed  to  have 
consisted  of  rough  lumps  or  rings  not  to  be 
considered  coin.  In  the  Book  of  Job  (xxviii. 
15)  we  are  told  that  "wisdom  cannot  be 
gotten  for  gold,  neither  shall  silver  be  weigh- 
ed for  the  price  thereof." 

Aristotle,  in  his  Politics  (Book  I.,  chap,  ix), 
gives  an  interesting  account  of  his  views  of 
the  origin  of  money,  and  distinctly  tells  us 
that  the  metals  were  first  passed  simply  by 


weight  or  size,  and  Pliny  makes  a  similar  as- 
sertion. That  it  was  so,  we  may  infer  from 
the  remarkable  fact  that,  even  when  no  use 
was  made  of  it,  the  custom  of  bringing  a  pair 
of  scales  survived  as  a  legal  formality  in  the 
sale  of  slaves  at  Rome. 

There  can  be  little  doubt  that  every  system 
of  coinage  was  originally  identical  with  a  sys- 
tem of  weights,  the  unit  of  value  being  the 
|  unit  of  weight  of  some  selected  metal.  The 
English  pound  sterling  was  certainly  the  Sax- 
on pound  of  standard  silver,  which  was  too 
large  to  be  made  into  a  single  coin,  but  was 
divided  into  two  hundred  and  forty  silver 
"pennies,  each  equal  to  a.  penny  weight.  In  the 
English  and  Scotch  pounds,  and  the  French 
iivre,  we  have  the  vestiges  of  a  uniform  in- 
ternational system  of  money  and  weights, 
the  establishment  of  which  is  attributed  to 
Charlemagne,  but  which  unfortunately  be- 
came differentiated  and  destroyed  by  the 
various  depreciations  of  the  coinage  in  one 
country  or  another.  Most  of  the  other  prin- 
cipal units  of  value  were  originally  units  of 
weight,  such  as  the  shekel,  the  talent,  the 
as,  the  stater,  the  libra,  the  mark,  the  franc, 
the  lira. 

In  the  Old  Testament  the  notion  of  money 
is  expressed  three  times  by  the  Hebrew  word 
kesitah,  which  is  translated  in  certain  old 
versions  into  words  meaning  lamb.  This 
might  seem  to  be  an  additional  proof  of  the 
former  use  of  cattle  as  a  medium  of  ex- 
change; but  I  am  informed  by  my  learned 
friend,  Professor  Theodores,  that  this  trans- 
lation probably  arises  from  an  accidental 
blunder,  and  that  the  original  meaning  of 
the  word  kesitah,  was  that  of  a  "certain 
weight,"  or  "an  exact  quantity."  The  cor- 
responding word  in  the  Arabic,  kist,  is  said 
to  denote  a  pair  of  scales. 

Currency  by  weight  still  exists  amon^  con- 
siderable portions  of  the  human  race.  In 
the  Burman  empire,  for  instance,  three  kinds 
of  metal  are  current,  namely,  lead,  silver,  and 
gold,  and  all  payments  are  made  by  the  bal- 
ance, the  unit  of 'weight  for  silver  being 
the  tical.  In  the  Chinese  empire  and  Cochin 
China,  there  is  indeed  a  legal  tender  currency 
of  cash  or  sapeks  but  gold  and  silver  are  usu- 
ally dealt  in  by  weight,  the  unit  being  the 
tael.  A  very  interesting  account  of  Chinese 
money,  by  M.  le  Comte  Rochechouart,  will 
he  found  in  the  Journal  des  Economist's  for 
J.S6Q  (vol.  xv.,  page  103).  According  to  this 
writer,  both  gold  and  silver  are  treated  sim- 
ply as  merchandise,  and  there  is  not  even  a 
recognized  stamp, or  government  guarantee  of 
the  fineness  of  the  metal.  The  traveler  must 
carry  these  metals  with  him,  as  a  sufficient 
quantity  of  strings  of  cash  would  require  a 
wagon  for  their  conveyance.  Yet  in  ex- 
changing silver  or  gold  he  is  sure  to  suffer 
great  losses,  both  from  the  falsity  of  bal- 
ances and  weights,  and  the  uncertain  fine- 
ness of  the  metal.  In  buying  a  tael  of  gold 
the  traveler  may  have  to  give  eighteen  tacls 


26  [74] 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


of  silver;  but  in  selling  it  he  will  often  not 
obtain  more  than  fourteen  taels. 

Whatever  be  the  inconveniences  of  the 
method,  currency  by  weight  is  yet  the  nat- 
ural and  necessary  system  to  which  people 
revert  whenever  the  abrasion  of  coins,  the 
intermixture  of  currencies,  the  fall  of  a  state, 
or  other  causes,  destroy  the  public  con- 
fidence in  a  more  highly  organized  system. 
Though  the  silver  penny  among  the  Anglo- 
^  axons  was  supposed  to  correspond  with  a 
pennyweight,  there  was  a  practice  of  giving 
compensatio  ad  pensum,  which  really  amount- 
ed to  taking  the  coins  by  weight,  to  allow  for 
ab.rasion  and  inaccurate  or  false  coinage. 
The  as  was  at  first  equal  in  weight  to  a 
Roman  pound,  but  it  was  rapidly  lessened, 
so  that  at  the  epoch  of  the  First  Punic  War, 
it  did  not  exceed  two  ounces,  and  by  the 
time  of  the  Second  Punic  War  it  had  sunk 
to  one  ounce.  The  Roman  people  had  nat- 
urally reverted  to  weighing  the  metal,  and 
the  aes  grave  was  money  reckoned  by  weight 
instead  of  by  tale. 

In  the  present  day,  currency  by  weight  is 
far  more  extensively  practiced  than  might 
be  supposed,  because,  in  many  parts  of  the 
world,  the  currency  consists  of  a  miscel- 
laneous assortment  of  old  gold,  silver,  and 
even  copper  coins,  which  have  been  brought 
thither  from  other  countries,  and  have  been 
variously  worn,  clipped,  or  depreciated.  In 
such  countries,  the  only  means  of  avoiding 
loss  and  fraud  is  to  weigh  each  coin,  and 
the  impress  passes  for  little  more  than  an  in- 
dication of  the  fineness  of  the  metals.  In 
all  large  international  transactions,  again, 
currency  by  weight  is  the  sole  method.  The 
regulations  of  a  state  concerning  its  legal 
tender,  have  no  validity  beyond  its  own 
frontiers;  and  as  all  coins  are  subject  to 
more  or  less  wear  and  uncertainty  of 
weight,  they  are  received  only  for  the  actual 
weight  of  metal  they  are  estimated  to  con- 
tain. The  coin  of  well-conducted  foreign 
mints  is  bought  and  sold  by  weight  without 
melting;  but  the  coin  of  minor  states,  which 
have  occasionally  depreciated  their  money,  is 
melted  up  and  treated  simply  as  bullion. 

UNRESTRICTED  CURRENCY  BY  TALE. 

The  simplest  way  for  a  state  to  manage  its 
money,  might  seem  to  be  to  revert  to  the 
primitive  notion  of  a  coin,  and  issue  pieces  of 
gold,  silver,  and  copper,  certified  to  be  equal 
to  units  of  weight,  leaving  all  persons  free  to 
make  contracts  or  sales  in  terms  of  any  of 
these  metals.  These  pieces  of  certified  metal 
would  then  be  so  many  commodities  thrown 
into  the  markets  and  allowed  to  take  their 
natural  relative  values. 

Such  appears  to  have  been  the  system  in- 
tended to  be  established  by  the  French  Revo- 
lutionary Government  in  terms  of  the  abor- 
tive law  of  Thermidor,  an  III.  Disks  of 
ten  grams  each  were  to  be  struck  in  gold, 
silver,  and  copper,  and  then  put  in  circu- 


lation, without  any  attempt  to  regulate  their 
currency.  If  I  understand  his  meaning  con. 
rectly,  M.  Gamier  has  recently  brought  for- 
ward a  somewhat  similar  scheme,  proposing 
to  make  the  gram  of  gold  at  nine-tenths  the 
unit  of  value,  and  to  coin  pieces  of  one,  two, 
five,  eight,  or  ten  grams  concurrently  with 
standard  silver  pieces,  which  are  in  France 
already  multiples  of  the  gram.  M.  Cheval- 
ier's proposed  system  of  international  money, 
partially  at  least,  involves  the  same  notion; 
for  he  considers  that  the  principal  currency 
should  consist  of  decagrams  of  gold.  But, 
as  Mr.  Bagehot  has  well  remarked,  there  is 
no  object  whatever,  as  regards  the  greater 
mass  of  the  population,  in  having  coins  sim- 
ply related  to  the  system  of  weights,  because 
most  people  never  need  take  any  account  of 
the  weight  at  all.  They  need  only  know  how 
many  copper  coins  are  equal  to  one  silver 
coin,  and  how  many  silver  to  one  gold  coin. 
Now,  if  we  carry  out  M.  Chevalier's  scheme 
consistently  and  fully,  and  make  all  the  coins 
multiples  of  the  gram,  we  shall  oblige  all 
people  to  be  constantly  working  complex 
arithmetical  sums.  No  one  could  give  ex- 
actly  correct  change  without  calculating 
how  many  silver  ten-gram  pieces  are,  at  the 
market  price  of  silver,  equal  to  one  gold  ten- 
gram  piece.  The  necessity  for  calculation 
occasions  needless  loss  of  time  and  trouble, 
and  a  factitious  gain  is  sure  to  accrue  to  the 
expert  and  unscrupulous  at  the  expense  of 
the  poor  and  ignorant. 

Owing  to  these  obvious  objections  no 
government  has  ever,  I  believe,  carried  into 
practice  a  system  of  money  of  the  kind  de- 
scribed. Nevertheless,  currencies  approxi- 
mating to  it  in  nature  have  come  to  exist  in 
many  parts  of  the  world  by  the  intermixture 
of  coinages  of  different  states.  There  are 
many  half-civilized  nations  which  have  no 
national  coinage,  but  employ  the  coins 
which  happen  to  reach  them  in  the  course  of 
trade.  On  the  West  Coast  of  Africa  the 

panish  dollar  is  the  best  known  coin,  but 
Danish,  French  or  Dutch  coins  also  circulate. 
In  several  of  the  South  American  States  the 
currency  is  in  a  state  of  complete  confusion, 
consisting  of  a  mixture  of  American  eagles, 
gold  doubloons,  silver  dollars,  English  sov- 
ereigns, piastres,  etc.,  together  sometimes 
with  several  different  issues  of  coinage  of 
the  South  American  States  variously  depreci- 
ated. Even  in  the  British  possessions  we 
find  the  same  state  of  things.  In  the  British 
West  Indian  Islands,  American,  Mexican, 
Spanish,  and  other  dollars,  circulate  concur- 
rently with  English  money  ;  but  it  should  be 
added  that  in  most  cases  the  Spanish  dollar 
is  treated  as  the  standard  of  value,  and  other 
coins  are  quoted  in  terms  of  it. 

In  Eastern  countries  there  is  a  similar 
intermixture  of  coinage.  In  Singapore  the 
Indian  rupee  mingles  with  Spanish  and  Mex- 
ican dollars.  Persia  has  a  rude  coinage  of 
its  own,  so  uncertain  in  weight  that  it  has  to 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


[75]  2' 


be  dealt  in  by  the  balance,  but  Russian, 
Turkish,  and  Austrian  gold  coins  circulate  by  ( 
tale.  Some  of  the  best-regulated  nations 
have  allowed,  or  even  promoted,  the  cur- 
rency of  various  foreign  coins.  In  Ger- 
many, French  and  English  gold  coins  used 
to  be  accepted,  according  to  a  well-recog- 
nized tariff.  The  circulation  of  English, 
French,  Spanish,  Mexican,  and  other  gold 
coins  in  the  United  States  was  legalised  by 
an  Act  of  June  28th,  1834,  repealed  by  an 
Act  of  February  2ist,  1857,  which  however 
allows  certain  foreign  coins  to  be  received 
at  government  offices. 

In  England  we  have  for  many  generations 
enjoyed  a  very  pure  currency,  so  that  we  are 
unconscious  of  the  inconveniences  arising 
from  a  confusion  of  coins  of  different  values. 
But  in  the  early  part  of  this  century  Spanish 
dollars  were  put  into  circulation  for  a  time  in 
England. 

In  former  centuries  the  mixture  of  coin- 
ages was  far  more  common  than  at  present. 
No  country  had  a  currency  free  from  strange 
coins.  It  is  impossible  to  open  an  old  book 
on  commerce  without  finding  long  tables  of 
coins  which  the  merchant  might  expect  to 
meet  with ;  and  the  business  of  money- 
changing  was  a  lucrative  and  common  one. 

It  will  be  understood,  that  only  so  long  as 
coins  are  known  by  the  fresh  sharp  appear- 
ance of  the  impression  to  be  of  full  weight, 
and  are  accepted  according  to  tariff,  does  the 
system  of  currency  by  tale  of  number  exist. 
The  silver  dollar,  being  a  large  coin,  is  sub- 
ject to  comparatively  little  abrasion,  so  that 
people  learn  to  receive  dollars  of  various 
species  at  certain  well-established  rates. 
Thus  the  dollar  has  practically  been  for  sev- 
eral centuries  the  international  money  of  the 
tropical  countries.  But  so  soon  as  coins  bear 
evidence  of  wear  or  ill-treatment,  they  must 
be  circulated  by  weight,  and  we  revert  to  a 
more  primitive  system. 

M.  Feer-Herzog  has  described,  as  the  sys- 
tem of  parallel  standards,  that  in  which  a 
state  issues  coins  in  two  or  more  metals,  and 
then  allows  them  to  circulate  by  tale  at  ratios 
varying  according  to  the  market  values  of  the 
metals.  He  cites,  as  recent  examples,  the 
rixdaler  in  silver,  employed  as  the  internal 
money  of  Sweden  in  combination  with  the 
ducat  in  gold,  serving  as  international  money. 
The  government  of  India,  again,  has  on  sev- 
eral occasions  tried  to  introduce  a  parallel 
standard  of  gold  alongside  of  the  single  silver 
legal  tender  now  existing  there.  Gold  mo- 
hurs  have  long  been  more  or  less  in  circula- 
tion in  India,  and  are  supposed  to  form  at 
present  about  one-tenth  part  of  the  coinage. 
They  are  of  exactly  the  same  weight  and  fine- 
ness as  the  silver  rupee,  and  are  usually 
valued  at  from  fifteen  to  fifteen  and  two- 
third  rupees.  It  seems  probable,  however, 
that  what  M.  Feer-Herzog  calls  the  system 
of  parallel  standards  will  coincide  according 
to  circumstances,  either  with  that  which  I 


have  described  as  the  system  of  unrestricted 
currency  by  tale,  or  that  of  a  single  legal  ten- 
der, with  an  additional  commercial  money  of 
varying  value.  The  Indian  currency  must 
certainly  be  classed  under  the  latter  head. 
There  cannot  in  fact  be  two  different  parallel 
standards  used  both  at  the  same  time  ;  and 
though  it  is  not  uncommon  for  a  state  to  coin 
moneys  in  two  metals,  and  leave  its  subjects 
to  pay  in  one  or  other  at  will,  yet  one  of  the 
two  is  generally  recognized  as  the  standard  of 
value. 

SINGLE    LEGAL   TENDER    SYSTEM. 

The  system  of  currency  naturally  adopted 
by  the  first  coiners  of  money  was  that  of  a 
single  legal  tender.  Coins  of  one  kind  of 
metal,  or  even  a  single  series  of  coins  of  uni- 
form weight,  were  at  first  thought  sufficient. 
Iron  in  small  bars  was  the  single  legal  tender 
in  Lacedaemon,  and  possibly  in  some  other 
early  states.  Aes  was  undoubtedly  the  legal 
tender  among  the  Romans  for  a  length  of 
time.  In  China  the  sole  measure  of  value 
and  legal  tender  to  the  present  day  consists 
of  brass  cash  or  sapeks,  strung  together  in  lots 
of  a  thousand  each.  In  England  silver  was 
the  only  metal  coined  from  the  time  of  Egbert 
to  that  of  Edward  III.,  with  the  doubtful  ex- 
ception  of  a  very  few  small  pieces  of  gold, 
Silver  was  the  sole  legal  tender  and  measure 
of  value,  and  few  coins  except  silver  pennies 
were  issued.  In  Russia  and  Sweden,  during 
part  of  last  century,  copper  was  the  sole  legal 
tender. 

A  single  metal  currency  has  the  great  ad. 
vantages  of  simplicity  and  certainty.  Every 
one  knows  exactly  what  he  is  to  pay  or  re- 
ceive, and  when  the  coins  are  of  one  size  or 
of  a  few  sizes,  simply  related  to  each  other, 
like  the  early  English  coins,  no  one  is  sub- 
ject to  loss  by  errors  of  calculation.  But 
there  is  the  obvious  disadvantage  that,  ac- 
cording as  the  metal  chosen  is  cheap  or  dear, 
large  or  small  transactions  will  be  trouble- 
some to  effect.  To  pay  a  few  hundred  pound3 
in  Swedish  copper  plates,  or  Chinese  strings 
of  cash,  a  cart  would  be  required  for  con- 
veyance, and  the  counting  of  cash  is  almost 
impracticable.  A  silver  coinage  again  does 
not  admit  of  coins  sufficiently  small  for 
minor  transactions.  It  is  difficult  to  under- 
stand how  retail  trade  was  carried  on  when 
the  silver  penny  weighed  twenty-two-and-a- 
half  grains,  and  the  precious  metals  were 
far  more  precious  than  at  present.  The 
penny  was,  indeed,  cut  up  into  half  pence 
and  farthings,  i.  e.,  four  things;  but  even 
the  farthing  must  have  been  equal  in  pur- 
chasing power  to  our  three-penny  or  four- 
penny  piece.  The  mass  of  the  currency  ap- 
pears to  have  consisted  of  silver  pennies. 

Accordingly  it  is  found  that,  if  a  govern- 
ment issue  coins  only  of  a  single  metal,  the 
people  will  introduce  and  circulate  coins  of 
other  metals  for  their  own  convenience.  In 
Anglo-Saxon  times,  gold  byzants  from  By- 


28  [76] 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


zantium  were  used  ih  England,  and  the  gold 
coins  of  Florence,  thence  called  florins,  were 
much  esteemed  both  here  and  in  other  parts 
of  Europe.  In  later  centuries,  too,  in  the 
absence  of  a  legitimate  copper  coinage, 
tradesmen's  tokens  came  into  general  circu- 
lation. 

MULTIPLE    LEGAL   TENDER   SYSTEM. 

Out  of  a  single  legal  tender  naturally  grew 
up  systems  of  a  double  or  even  multiple 
legal  tender.  The  Plantagenet  Kings  of  Eng- 
land, for  instance,  rinding  that  though  they 
coined  only  silver,  the  people  made  use  of 
gold,  eventually  began  to  issue  gold  coins, 
and  fixed  the  rates  at  which  they  should  be 
exchanged  for  silver  coins.  In  the  absence 
of  any  special  regulations  to  the  contrary, 
this  constituted  a  double  tender  system.  As, 
after  a  time,  the  ratio  of  values  of  the  metals 
would  fail  to  coincide  with  that  involved  in 
the  relative  weights  of  the  coins,  it  became 
requisite  to  fix  by  royal  proclamation  a  new 
value  for  one  metal  in  terms  of  the  other. 
From  1257  to  1664,  the  gold  and  silver  cur- 
rency of  England  was  thus  regulated,  no 
coins  of  copper  or  any  inferior  metal  being 
then  issued.  From  1664  to  1717,  proclama- 
tions were  made  upon  the  subject,  and  the 
value  of  the  guinea  was  allowed  to  vary  in 
terms  of  the  shilling.  At  one  time  it  rose 
nearly  to  thirty  shillings,  owing  partly  to  the 
decreased  value  of  silver,  but  chiefly  to  the 
clipped  and  worn  state  of  the  silver  money. 
During  this  interval,  then,  the  country  had  a 
single  silver  standard. 

In  the  early  part  of  the  last  century,  a 
great  deal  of  discussion  took  place  upon  the 
unsatisfactory  state  of  the  silver  currency,  and 
Sir  Isaac  Newton,  the  Master  of  the  Mint, 
was  requested  to  report  upon  the  best  meas- 
ures to  be  adopted.  In  1717  he  made  a 
celebrated  report,  recommending  that  the 
government  should  revert  to  the  practice  of 
fixing  the  price  of  the  guinea,  and  he  sug- 
gested twenty-one  shillings  as  the  best  rate. 
His  advice  being  accepted,  the  guinea  has 
ever  since  been  valued  at  twenty-one  shil- 
lings. Then  there  was  again  a  double  stand- 
ard in  England,  any  one  being  at  liberty  to 
pay  in  either  kind  of  coin.  In  practice,  how- 
ever, it  is  almost  impossible  that  the  com- 
mercial value  of  the  metals  should  coincide 
with  the  legal  ratio.  At  the  rate  adopted  by 
Sir  Isaac  Newton,  gold  was  overvalued  by 
rather  more  than  one  and  a-half  per  cent.'; 
to  that  extent  it  was  more  valuable  as  cur- 
rency than  as  metal.  Therefore,  in  accord- 
ance with  the  Law  of  Gresham,  and  the 
principles  laid  down  in  Chapter  VIII.,  the 
the  full  weight  silver  coin  was  withdrawn  or 
exported,  and  gold  became  the  practical 
measure  of  value,  which  it  has  ever  since 
continued  to  be. 

In  every  other  part  of  the  world,  where  at- 
tempts have  been  made  to  combine  two  met- 
als as  concurrent  standards  of  value,  similar 


results  have  followed.  In  Massachusetts,  in 
1762,  gold  was  made  a  legal  tender,  as  well 
as  silver,  at  the  rate  of  two  pence  halfpenny 
per  grain;  but  being  overvalued  as  much  as 
five  per  cent. ,  the  silver  coinage  rapidly  dis- 
appeared from  circulation.  Various  laws 
were  passed  to  remedy  this  inconvenient 
state  of  things,  but  without  success  so  long 
as  this  valuation  of  gold  was  maintained. 

In  these  and  many  other  cases  which 
might  be  quoted,  a  government  had  attempt- 
ed to  combine  a  circulation  of  gold  with  that 
of  silver,  without  being  aware  of  all  the  prin- 
ciples involved  in  the  experiment.  It  was 
hardly,  perhaps,  till  the  time  of  the  French 
Revolution  that  the  double  standard  system 
was  consciously  selected  as  the  best  method. 
Since  the  celebrated  law,  known  as  "La  loi 
du  7  Germinal,  an  XL,"  was  adopted  by  the 
Revolutionary  Government,  the  system  has 
become  identified  with  the  policy  of  the 
j  French  economists.  The  history  of  the 
origin  of  this  law  was  almost  unknown,  un- 
til M.  Wolowski  described  it  in  a  series  of 
valuable  articles  published  in  the  Journal '  des 
Economistes  for  1869. 

As  early  as  1790  Mirabeau  presented  to 
the  National  Assembly  a  celebrated  memoir 
on  monetary  doctrines,  in  which,  amid  a  cu- 
rious mixture  of  true  and  false  views,  he  de- 
cided in  favor  of  silver  as  the  principal  money, 
on  the  ground  of  the  greater  abundance  of 
silver  compared  with  gold.  He  proposed  to 
make  silver  the  constitutional  money,  that  is. 
the  legal  tender,  and  to  employ  gold  and  cop- 
per as  additional  signs  of  value.  These  ideas 
were  only  so  far  carried  out  that  the  franc 
was  defined  first  as  ten  grams  of  silver  by  the 
decree  of  the  ist  August,  1793,  and  was  af- 
terward definitely  fixed  at  five  grams  by  the 
law  of  the  28th  Thermidor,  an  III.  The 
old  gold  pieces  of  twenty  four  and  forty-eight 
livres  continued  to  circulate,  while  the  ten- 
gram  gold  pieces  ordered  by  the  decree  to  be 
struck  were  not  really  issued. 

In  the  year  IX.  Gaudin  proposed  that  the 
ratio  of  fifteen  and  a-half  to  one  should  be 
adopted  in  fixing  the  weight  of  the  gold  coins 
relatively  to  the  silver  ones.  Thus,  while 
the  franc  was  defined  as  consisting  of  five 
grams  of  silver  nine-tenths  fine,  the  twenty- 
franc  gold  piece  was  to  contain  6 '451  grams 
of  gold  of  equal  fineness.  He  seems  to  have 
thought  that  this  ratio  was  sufficiently  near 
to  that  of  the  market  to  allow  the  coins  to 
circulate  side  by  side  for  a  long  time,  and  in 
case  of  a  change,  he  thought  that  the  gold 
pieces  could  be  melted  and  reissued  at  a  dif- 
ferent weight.  After  a  great  amount  of  dis- 
cussion, in  which  Berenger,  Lebreton,  Daru, 
and  Bosc  took  the  most  prominent  parts,  the 
proposals  of  Gaudin  were  carried  out,  but 
not  precisely  on  the  ground  indicated  by 
him.  It  appears  to  have  been  thought  unwise 
either  to  demonetize  gold  altogether,  which 
would  have  seriously  diminished  the  circulat- 
ing medium,  or  to  leave  the  value  of  the 


MONEY  AND  Till-:  MECHANISM  OF  EXCHANGE. 


[V7]  2 


gold  coins  uncertain,  which  would  give  rise 
to  disputes. 

The  ratio  adopted  by  the  legislators  of  the 
Revolution  hapju-ncd  to  overvalue  silver  in 
pnme    degree,    and   hence   the   currency    of 
i-    came    to   consist    principally  of  the 
five-francs  pieces,  or  ecus.     Not  until 
the    Californian   and    Australian   discoveries 
gold   to   be  the   cheaper    money    in 


which  to  make  payments,  did  this  heavy  sil- 
ver money  gradually  disappear.  The  action 
of  the  double  standard  system  will  be  further 
considered  in  Chapter  XII. 

COMPOSITE  LEGAL  TENDER. 

We  have  seen  that  with  a  single  metal  cur- 
rency there  is  inconvenience  in  making  small 
or  large  payments,  according  as  the  metal 
chosen  is  dear  or  cheap.  If  two  or  more 
series  of  full-weight  coins  be  issued  in  differ- 
ent metal,  and  allowed  to  vary  in  relation  to 
each  other,  the  difficulty  of  circulation  inter- 


are  reduced  by  abrasion  or  clipping  below 
the  corresponding  weight.  From  the  year 
1717,  when  the  guinea  was  fixed  at  twenty- 
one  shillings,  until  the  present  system  was 
instituted  in  1816,  the  English  currency  was. 
based  theoretically  upon  the  double  standard 
system.  Practically,  however,  the  silver 
coins  were  so  scarce  and  worn  that  they 
served  but  as  tokens.  The  tradesmen's  cop- 
per tokens,  too,  being  always  of  light  weight, 
and  exchangeable  by  custom  for  a  certain 
proportion  of  silver  coins,  formed  the  third 
term  in  the  series.  But  Lord  Liverpool 
appears  to  have  been  the  first  to  apprehend 
and  explain  the  principles  on  which  such  a 
composite  system  worked,  and  there  can  be 
no  doubt  that  the  system,  as  he  expounded 
it,  is  the  best  adapted  for  supplying  a  con- 
venient and  economical  currency. 

Most  of  the  leading  nations  have  now 
adopted  the  composite  legal  tender  in  a  more 
or  less  complete  form.  France,  Belgium, 


venes.     If  they  both  be  made  legal   tenders  j  Switzerland,    and    Italy  still   adhere   to   the 
at  a  fixed  ratio,  the  currency  will  tend  to  be- 1  double  standard  in  theory,  but  have  reduced 

'  all  coins  of  less  value  than  five  francs  to  the 


come  composed  alternately  of  one  or  the 
other  metal,  and  money-changers  will  nuke 
a  profit  out  of  the  conversion. 

There  yet  remains  another  possible  system, 
in  which  coins  of  one  metal  are  adopted  as 
the  standard  of  value  and  principal  legal  ten- 
der, and  subordinate  token  coins  of  other 
ir:  etuis  are  furnished  for  the  purpose  of  sub- 
division, being  recognized  as  legal  tender 
only  for  small  amounts.  The  values  of  these 
token  coins  now  depend  upon  that  of  the 
standard  coins  for  which  they  ate  legally  ex- 
changeable, and  care  is  taken  to  make  their 
weights  such  that  the  metallic  value  will  al- 
ways be  less  than  the  legal  value.  No  profit 
can  ever  be  made  by  melting  such  coins,  or 
removing  them  from  the  country,  and  their 
rntio  of  exchange  with  the  principal  coins  is 
always  a  simple  ratio  fixed  by  law. 

The  composite  legal  tender  rises  naturally 
out  of  the  double  standard  system  ;  for,  as 
we  have  seen,  if,  under  the  latter  system, 
gold  be  overvalued  at  the  legal  rate,  all  full- 
\veight  silver  coins  will  be  withdrawn  §nd  ex- 
ported by  degrees,  so  that  there  will  remain 
practically  a  token  currency  of  light  silver. 
Lord  Liverpool,  having  in  his  thorough  in- 
vestigation of  the  subject  of  metallic  money 
observed  the  superior  convenience  of  the 
composite  legal  tender  to  the  double  legal 
tender,  advocated  its  adoption  in  England  in 
tae  most  conclusive  manner.  His  arguments 
will  be  found  in  his  admirable  "  Treatise  on 
the  Coins  of  the  Realm  in  a  Letter  to  the 
King"  (Oxford,  1805),  and  his  recommenda- 
tions, as  carried  into  effect  in  1816,  are  the 
foundation  of  our  present  monetary  system. 

A  composite  system  of  currency  has  fre- 
quently existed  in  one  country  or  another 

without   being    specially  designed    or  recog-  j  certainty,  thanks  to 
nized.       It  comes   into   existence   whenever  1(33    Victoria,    ch. 


footing  of  token  money,  by  reducing  the 
fineness  of  the  silver  from  900  parts  to  835 
parts  in  looo,  or  by  seven  and  one-fourth 
per  cent.,  and  by  limiting  the  amount  for 
which  they  are  legal  tender.  The  copper 
money  of  France  had  previously  been  re- 
stricted as  a  legal  tender  to  sums  below  five 
francs  in  any  one  payment.  In  the  United 
States,  when  metallic  currency  was  generally 
employed,  the  double  standard  system  exist- 
ed in  theory,  but  was  reduced  to  a  composite 
standard  by  the  excessive  overvaluing  of  the 
gold  money.  Moreover,  by  a  law  of  2ist  of 
February,  1853,  the  smaller  silver  coins  were 
reduced  in  weight  and  made  legal  tender 
only  for  sums  not  exceeding  five  dollars.  The 
silver  three-cent  pieces,  and  the  several  cop- 
per, bronze,  or  nickel  coins,  issued  from  the 
United  States  mints,  were  also  token  money 
with  various  limits  as  regards  legal  tender. 

The  new  German  monetary  system  is  per- 
fectly organized  as  a  composite  legal  tender. 

CHAPTER  X. 

THE  ENGLISH   SYSTEM   OF   METALLIC   CUR- 
RENCY. 

I  now  come  to  describe  in  more  detail  the 
system  of  metallic  currency  which  has  existed 
in  England  for  more  than  half  a  century,  and 
which  seems  to  be  the  best  of  all  as  regards 
the  principles  on  which  coins  of  three  differ 
ent  metals  are  combined  into  a  composite 
legal  tender.  The  legal  regulations  under 
which  the  Fnglish  coinage  is  issued  and  cir- 
culated, can  be  ascertained  with  ease  and 
the  Act  of  Parliament 
z),  which  Mr.  Lowe 


coins  of  gold  and  silver  are  current  at  rates    caused  to  be  passed  to  simplify  and  consoli- 
fixed  by  law  or  custom,  but  the  silver  coins  I  date  the  statutes  on  the  subject. 


[78] 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


ENGLISH    GOLD    COIN. 

The  English  sovereign  is  the  principal 
legal  tender  and  the  standard  of  value.  It  is 
defined  as  consisting  of  123*27447  grains 
t7 '98805  grams)  of  English  standard  gold, 
composed  of  eleven  parts  of  fine  gold,  and 
one  part  of  alloy,  chiefly  copper.  The  sov- 
ereign ought,  therefore,  in  theory,  to  con- 
tain 113-00160  grains,  or  7-32238  grams,  of 
pure  gold.  But  as  it  is  evidently  impossible 
to  make  coins  of  any  precise  weight,  or  to 
maintain  them  of  that  weight  when  in  circu- 
lation, the  weight  stated  is  only  that  standard 
Weight  to  which  the  mint  workmen  should 
-aim  to  attain  as  closely  as  possible,  both  in 
each  individual  piece,  and  in  the  average. 

From  the  weight  of  the  sovereign  we  de- 
duce the  mint  price  of  gold.  For  if  we  di- 
Yide  the  number  of  grains  in  the  sovereign  in- 
to the  number  of  grains — namely,  486 — in 
the  troy  ounce,  we  ascertain  exactly  how 
many  sovereigns  and  portions  of  a  sovereign 
the  mint  ought  to  return  for  each  ounce  de- 
livered in.  This  we  find  to  be  3*89375, 
'which  is  equivalent  to  ^3  17.?-.  io^</.  It 
conies  to  exactly  the  same  thing  to  say  in 
terms  of  the  old  mint  indentures,  that  twen- 
ty-pounds' weight  troy  of  gold  are  to  be 
coined  into  934  sovereigns,  and  one  half- 
sovereign.  I  have  heard  of  people  who  pro- 
tested against  the  government  fixing  the 
price  at  which  gold  should  be  bought  and 
sold  by  the  mint,  and  who  yet  allowed  that 
the  sovereign  must  have  some  fixed  weight. 
But  the  fixed  price  is  convertible  with  the  fixed 
weight,  and  vice  versa.  Either  follows  from 
the  other. 

In  practice  the  weight  of  a  coin  is  always 
a  matter  of  limits,  and  there  must  be  limits 
both  for  the  weight  assent  out  and  that  at 
\vhich  it  can  legally  remain  in  circulation. 
The  remedy  is  the  technical  name  for  the  al- 
lowance made  to  the  mint-master  for  imper- 
fection of  workmanship,  and  is  defined  by 
the  Act  as  two-tenths  of  a  grain  (0*01296 
gram).  Thus  the  mint  cannot  legally  issue 
a  sovereign  weighing  less  than  123  "074  grains, 
or  more  than  123-474  grains.  Since  the  fine- 
ness of  the  gold,  again,  can  never  be  adjust- 
ed exactly  to  the  standard  of  eleven  parts  in 
twelve,  or  916 '66  in  a  1000,  a  remedy  of  two 
parts  in  1000  is  allowed  in  this  respect.  It  is 
understood  that  the  English  mint  succeeds  in 
working  well  within  the  remedy  both  of 
weight  and  fineness- 

Every  sovereign  issued  from  the  mint  in 
accordance  with  these  regulations,  and  bear- 
ing the  impress  authorized  by  the  Queen,  is 
legal  tender,  and  must  be  accepted  by  a 
creditor  in  discharge  of  a  debt  to  that 
amount,  provided  that  it  has  not  been  re- 
duced by  wear  or  ill-treatment  below  the 
weight  of  122-50  grains  (7*93787  grams). 
If  a  sovereign  of  less  than  this  least  current 
weight  be  tendered  to  any  person,  he  is  pre- 
sumed by  the  law  to  detect  the  deficiency, 


and  is  bound  to  cut  or  deface  the  coin,  and 
return  it  to  the  tenderer,  who  must  bear  the 
loss.  If  the  coin  so  defaced  should  prove 
not  to  be  below  the  limit,  then  the  defacer 
has  to  receive  it  and  bear  the  loss  arising 
from  his  mistake.  Any  justice  of  the  peace 
may  decide  disputes  arising  concerning  light 
sovereigns  in  a  summary  manner. 

The  only  other  gold  coin  actually  issued  is 
the  half-sovereign,  of  which  the  standard1 
weight  and  remedy  are  exactly  half  those  of 
the  sovereign,  the  remedy  in  fineness  the 
same  as  in  the  sovereign,  and  the  least  cur- 
rent weight  61-1250  grains  (3-96083  grams). 
The  Coinage  Act  also  legalizes  the  issue  of 
two  and  five-pound  gold  pieces,  the  weights 
and  remedies  in  weight  being  corresponding 
multiples  of  those  of  the  sovereign.  Coins  of 
the  value  of  five  and  two  guineas  were  struck 
by  most  of  the  English  monarchs  from  the 
time  of  Charles  II.  to  that  of  George  III. 
Patterns  of  five  and  two-pound  pieces  have 
been  prepared  under  Queen  Victoria  ;  but 
gold  coins  of  this  size  have  not  been  issued  in 
the  present  reign,  nor  is  it  desirable,  for 
reasons  stated  in  Chapter  XIII,  that  they 
should  be  issued. 

ENGLISH    SILVER    COIN. 

The  further  subdivision  of  the  pound  is 
effected  by  token  coins  of  silver  and  bronze, 
which  are  made  of  such  weights  that  there  is 
no  danger  of  their  metallic  values  rising 
above  the  metallic  value  of  the  gold  coins 
for  which  they  are  legally  equivalent.  Pre- 
vious to  the  year  1816,  the  troy  pound  of 
standard  silver,  containing  925  parts  of  fine 
silver  and  seventy-five  parts  of  alloy  in  1000, 
was  coined  into  sixty-two  shillings,  so  that 
each  shilling  would  contain  92*90  grains  of 
standard  metal.  Under  these  regulations 
gold  was  rated  as  15*21  times  as  valuable  as 
silver.  As  silver,  however,  may  sometimes 
become  more  valuable  relatively  to  gold, 
Lord  Liverpool  very  wisely  recommended  in 
his  letter  to  the  king,  that  the  weight  of  the 
shilling  should  be  reduced.  By  the  Act  56 
Geo.  MI.  ch.  68,  it  was  ordered  that  the 
troy  pound  of  silver  should  be  coined  into 
sixty-six  shillings,  a  reduction  of  weight  of 
about  six  per  cent.  The  new  Coinage  Act 
maintains  the  chief  provisions  of  that  of 
1816,  so  that  the  English  shilling  now  has 
the  weight  of  87-27272  grains  of  standard 
silver  (5*65518  grams),  and  the  weights  of  all 
the  other  silver  coins  are  exactly  correspond- 
ing multiples  or  submultiples  of  this.  The 
mint  remedy  in  weight  for  the  shilling  is  a 
little  more  than  the  third  part  of  a  grain,  and 
in  simple  proportion  for  the  other  coins.  The 
remedy  in  fineness  is  in  all  cases  four  parts  in 
one  thousand.  The  denominations  of  coins 
authorized  are  nine  in  number,  namely,  the 
crown,  half-crown,  florin,  shilling,  sixpence, 
groat,  or  fourpenny  piece,  threepence,  two- 
pence, and  penny.  All,  except  the  crown, 
are  coined  in  greater  or  less  quantity,  but 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


the  fcurpence,  twopence,  and  penny,  are 
now  only  stiuck  in  very  j. mall  quantities,  as 
Maundy  money,  which,  after  being  distrib- 
uted by  the  Queen  annually  in  alms,  appears 
to  find  its  way  into  numismatic  cabinets  or 
to  ;>e  melted  down. 

All  such  coins  are  legally  current,  irrespec- 
tive of  their  weights,  so  long  as  they  are  not 
called  in  by  proclamation,  or  so  worn  and  de- 
faced that  the  impress  of  the  mint  cannot  be 
recognized.  The  coin  in  circulation  is  actu- 
ally reduced  in  weight  by  abrasion  to  a  con- 
siderable amount,  often  one-fourth  or  one- 
third  of  its  original  weight.  Moreover,  the 
fall  in  the  value  of  silver  relatively  to  gold 
reduces  the  metallic  worth  of  the  coins,  so 
that  no  one  can  export  them  to  foreign  coun- 
tries, or  melt  them  for  sale  as  bullion,  without 
losing  from  ten  to  thirty  per  cent,  of  their 
nominal  value. 

It  would  obviously  be  a  cause  of  grievance 
if  a  person  could  be  obliged  to  receive  unlimit- 
ed amounts  of  this  token  money  in  discharge 
of  a  debt.  Merchants  might  often  have 
thousands  of  pounds  worth  of  such  coins 
thrown  upon  their  hands,  the  full  value  of 
which  could  only  be  realized  by  gradually  put- 
ting it  into  circulation  again.  It  was  there- 
fore provided  by  the  Acts  of  1816  and  1870, 
that  silver  coin  shall  be  a  legal  tender  only  to 
the  amount  of  forty  shillings  in  any  one  pay- 
ment. This  limit  was  chosen  apparently  be- 
cause the  two-pound  piece  was  in  1816  re- 
garded as  the  largest  coin  then  in  circulation, 
or  likely  to  be  issued. 

ENGLISH    BRONZE    COINAGE. 

The  final  subdivision  of  the  pound  is  ef- 
fected by  bronze  pence,  halfpence,  and  farth- 
ings, of  which  the  weights  when  issued  should 
be  respectively  145*833,  87*500  and  43'75o 
grains.  They  are  composed  of  an  alloy  of 
ninety-five  parts  by  weight  of  copper,  four 
parts  of  tin,  and  one  part  of  zinc,  being  exact- 
ly the  same  kind  of  bronze  as  was  previously 
employed  by  the  French  mints.  The  remedy 
in  weight  is  one-fifth  of  one  percent.,  and  as 
the  coins  are  token  money  there  is  no  least 
current  weight.  As  the  reasons  against  al- 
lowing them  to  be  a  legal  tender  for  large 
sums  are  stronger  than  in  the  case  of  silver 
coin,  it  is  enacted  that  bronze  coins  shall  be 
a  legal  tender  only  to  an  aggregate  amount  of 
one  shilling. 

If  a  copper  penny  were  now  made  to  con- 
tain metal  equivalent  in  value  to  the  two  hun- 
dred and  fortieth  part  of  a  sovereign,  its 
weight  would  be  eight  hundred  and  seventy- 
one  grains,  at  the  present  market  price  of 
copper  (£75  per  ton).  Thus  the  fractional 
coinage  has  been  reduced  in  weight  nearly  to 
one-sixth  part  of  what  it  would  be  as  stand- 
ard copper  coin.  The  bronze  of  which  the 
pence  are  made  is  worth,  according  to  Mr. 
Seyd,  ten  pence  per  troy  pound,  so  that  the 
metallic  values  of  the  coins  are  almost  exactly 
one-fourth  part  of  their  nominal  values.  A 


|  considerable  profit  therefore  accrues  upon  the 
coinage  of  bronze,  amounting  up  to  the  end 

I  of  1871  to  about  ,£270,000;  but  the  reduction 
of  weight  is  altogether  an  advantage,  and  is 
probably  not  carried  as  far  as  it  might  pro. 
perly  be  done. 

DEFICIENCY    OF   WEIGHT    OF    THE    ENGLISH 
GOLD     COIN. 

It  is  the  theory  of  the  present  English 
monetary  law,  as  we  have  seen  (Chapter  X.), 
that  every  person  weighs  a  sovereign  tender- 
ed to  him,  and  assures  himself,  before  ac- 
cepting it,  that  it  does  not  weigh  less  than 
I22'5  grains.  In  former  days,  it  was  not  un- 
common for  people  to  carry  pocket-scales  for 
weighing  guineas,  and  such  scales  may  still 
be  occasionally  seen  in  old  curiosity  shops. 
But  we  know  that  the  practice  is  entirely 
given  up,  and  that  even  the  largest  receivers 
ol  coin,  such  as  the  banks  and  railway  com- 
panies, and  even  the  tax-offices,  post-offices, 
etc.,  do  not  pay  the  least  regard  to  the  law. 
Only  the  Bank  of  England,  its  branches,  and 
a  few  government  offices,  weigh  gold  coin  in! 
England.  The  result  is  that  a  large  part  of 
the  gold  coinage  is  worn  below  the  least  cur- 
rent weight,  and  all  persons  of  experience 
avoid  paying  old  sovereigns  to  the  Bank  of 
England.  Only  ignorant  and  unlucky  per- 
sons, or  else  large  banks  and  companies  which 
cannot  otherwise  get  rid  of  light  coin,  suffer 
loss.  The  quantity  of  light  gold  coin  with- 
drawn by  the  bank  did  not  for  many  years 
exceed  half  a  million  a  year;  during  the  last 
few  years  it  has  varied  from  .£700,000  to 
£950,000.  As  the  average  amount  of  gold 
coined  annually  is  four  or  five  millions,  and 
the  coins  melted  or  exported  are  for  the  most 
part  new  and  of  full  weight,  it  follows  ne- 
cessarily, that  the  currency  is  becoming  more 
and  more  deficient  in  weigh;. 

In  1869,  I  ascertained,  by  a  careful  and 
extensive  inquiry,  that  thiny-one  and  a-half 
per  cent,  of  the  sovereigns  and  nearly  one- 
half  )i  the  ten-shilling  pieces  were  then  be- 
low the  legal  limit.  The  reader  who  has  at- 
tended to  the  remarks  on  Gresham's  Law 
(Chapter  VIII.),  will  see  that  no  amount  of 
coinage  of  new  gold  will  drive  out  of  circula- 
tion these  depreciated  old  coins,  because 
those  who  export,  or  melt,  or  otherwise  treat 
the  coins  as  bullion,  will  take  care  to  operate 
upon  good  new  ones. 

Great  injustice  arises  in  some  cases  from 
this  defective  state  of  the  gold  currency.  I 
have  heard  of  one  case  in  which  an  inexperi- 
enced person,  after  receiving  several  hundred 
pounds  in  gold  from  a  bullion  dealer  in  the 
city  of  London,  took  them  straight  to  the 
Bank  of  England  for  deposit.  Most  of  the 
sovereigns  were  there  found  to  be  light,  and 
a  prodigious  charge  was  made  upon  the  un- 
fortunate depositor.  The  dealer  in  bullion 
had  evidently  paid  him  the  residuum,  of  a 
mass  of  coins,  from  which  he  had  picked  the 
heavy  ones.  In  a  still  worse  case, 


32  [80] 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


reported  to  me,  a  man  presented  a  post-office  I 
order  at  St.  Martins-le-Grand,  and  carried 
the  sovereigns  received  to  the  stamp-office  at 
Somerset  House,  where  the  coins  were 
weighed,  and  some  of  them  found  to  be  de- 
ficient. Here  was  a  man,  so  to  say,  de- 
frauded between  two  government  offices. 

It  should  be  stated  that  the  government 
made,  in  July,  1870,  a  slight  effort  to  .pro- 
mote the  withdrawal  of  light  gold  by  engag- 
ing to  receive  it  through  the  Bank  of  Eng- 
land at  the  full  price  of  £3  ijs.  qd.  per  ounce 
by  weight,  the  price  previously  paid  by  the 
bank  having  been  only  £3  17*.  6^r/.,  owing 
to  the  old  sovereigns  being  a  little  below  the 
standard  in  fineness.  A  certain  increase  in 
the  amounts  withdrawn  has  no  doubt  fol- 
lowed this  measure:  but  the  loss  by  defici- 
ency in  weight  is  still  thrown  upon  the  pub- 
lic, and  as  long  as  this  is  the  case  the  with- 
drawal of  light  gold  will  continue  inadequate 
to  maintain  the  coinage  at  its  standard 
weight. 

WITHDRAWAL    OF   LIGHT    GOLD    COIN. 

Some  steps  must  soon  be  taken  to  remedy 
the  increasing  deficiency  of  weight  of  the 
gold  coinage  described  above.  The  with- 
drawal may  no  doubt  be  effected  in  several 
ways.  One  method  would  be  for  the  Queen  to 
issue  a  proclamation  calling  in  and  prohibit- 
ing the  circulation  of  all  gold  coins  more  than 
twenty  or  twenty-five  years  old,  as  it  is  mostly 
the  older  coins  which  are  deficient  in  weight. 
Another  method  would  be  to  oblige  all  reve- 
nue officers,  postmasters,  and-  others,  under 
the  control  of  government,  ro  weigh  all  sov- 
ereigns presented  to  them.  If  necessary,  the 
bankers  of  the  kingdom  generally  might  be 
obliged  to  weigh  coin.  But  it  is  obvious  that 
great  trouble  and  inconvenience  would  arise 
from  such  measures.  The  progress  of  the 
post-office  savings  bank  would  be  imperiled 
if  every  depositor  of  a  pound  were  liable  to 
be  charged  two  per  cent,  for  lightness.  Con- 
siderable excitement  and  trouble  followed 
the  issue  of  the  last  proclamation  of  June, 
1842,  calling  in  light  gold.  To  make  the 
last  holder  of  a  coin  pay  for  the  whole  cost 
of  its  circulation  during  thirty  or  forty  years 
past,  leads  in  many  cases  to  gross  injustice. 
The  present  law  tends  to  throw  the  loss 
upon  the  poor,  who  have  usually  only  one  or 
two  sovereigns  at  a  time  to  pay,  whereas  rich, 
people,  having  many,  can  avoid  paying  light 
gold  at  offices  where  it  will  be  weighed. 

I  hold  that  the  only  thorough  remedy  is 
for  the  government  to  bear  the  loss  oc- 
casioned by  the  wear  of  the  gold,  as  it  al- 
ready bears  that  of  the  silver  currency. 
The' Bank  cf  England  should  be  authorized 
to  receive  all  sovereigns  showing  no  marks  of 
intentional  damage  or  unfair  treatment  at 
their  full  nominal  value  on  behalf  of  the 
mint,  which  should  re-coin  the  light  ones  at 
the  public  expense.  No  one  would  then  have 
any  reason  for  keeping  the  light  gold  away 


from  the  bank;  the  currency  would  soon  be 
purged  of  the  illegally  light  coins,  and 
would  thenceforth  be  kept  up  strictly  to  the 
standard  weight;  all  loss  of  time  and  trouble 
would  be  saved  to  individuals,  a  consider- 
ation which  we  should  not  lose  sight  of;  and, 
lastly,  no  injustice  would  be  done,  as  at 
present,  to  the  last  holder  of  a  light  sov- 
ereign. 

In  opposition  to  such  a  proposal  it  is 
usually  urged,  that  encouragement  would  be 
given  to  the  criminal  practice  of  sweating  or 
otherwise  diminishing  the  weight  of  the 
currency.  I  answer  that,  on  the  contrary, 
it  is  the  present  state  of  things  which  gives  . 
the  best  opportunity  for  illegal  practices,  be- 
cause it  renders  the  population  perfectly  ac- 
customed to  handling  old  and  worn  coins. 
No  one  now  actually  refuses  any  gold  money 
in  retail  business,  so  that  the  sweater,  if  he  ex- 
ists at  all,  has  all  the  opportunities  he  can 
desire.  I  have  met  with  sovereigns  deficient 
to  the  extent  of  four  to  five  grains,  or  eight 
pence  to  ten  pence,  but  they  nevertheless 
circulate.  If  under  a  better  system  the 
gold  currency  consisted  entirely  of  full- 
weight,  fresh  coins,  with  sharp,  new,  perfect 
impressions,  attention  would  quickly  be 
drawn  to  any  coin  which  appeared  to  be 
worn  or  ill-treated  in  any  degree.  As  the 
currency,  too,  would  be  constantly  passing 
through  the  automaton  weighing-machines 
of  the  Bank  of  England,  without  vreviously 
undergoing  the  operation  of  garbling  by 
bullion  brokers,  sweated  coins,  if  they  ex- 
isted at  all,  would  soon  be  detected;  where- 
as, according  to  the  present  system,  thebank 
authorities  have  no  opportunity  of  exami^in^ 
the  whole  coinage.  It  is  the  present  state  of 
things,  then,  which  gives  the  best  oppor- 
tunity for  tampering  with  the  currency, 
though  there  is  no  evidence  to  show  that 
fraudulent  practices  are  carried  on  to  any 
appreciable  extent.  Under  the  proposed, 
new  system,  such  practices  would  be  ren 
dered  almost  impossible. 

SUPPLY    OF    GOLD    COIN. 

It  is  the  theory  of  the  English  monetary 
law  that  every  individual  is  entitled  to  take 
gold  to  the  mint  and  have  it  coined  gratui- 
tously, all  the  expenses  being  borne  by  the 
public  revenues.  It  is  intended  that  the  coin 
shall  be  rendered  identical  in  value  with  an 
equal  quantity  of  gold  bullion,  so  that  it 
shall,  in  short,  be  so  much  certified  bullion. 
and  shall  be  reconvertible  in  to  ingots  without 
loss.  Though  this  theory  is  simple  and 
sound  in  some  respects,  it  is  not  perfectly 
carried  into  practice.  The  mint  never  en- 
gages to  deliver  coin  in  immediate  exchange 
for  gold  sent  for  coining,  so  that  there  is  a 
loss  of  interest  during  the  uncertain  interval 
of  coinage.  If,  instead  of  sending  gold  di- 
rectly to  the  mint,  the  owner  pursues  the 
customary  mode  of  selling  it  to  the  Bank  of 
England,  he  receives,  according  to  the  Bank 


MONEY  AM)  THE  MECHANISM  OF  EXCHANGE. 


[81]  33 


Charter  Act  of  1844,  only  three  pounds,  sev- 
enteen shillings,  ninepence  per  ounce,  in- 
stead of  the  full  mint  price  of  three  pounds, 
seventeen  shillings,  ten  and  one-half  pence. 
Moreover,  it  has  been  pointed  out  by  Mr.  E. 
Seyd,  that,  as  the  bank  used  to  conduct  their 
bullion  business,  there  was  a  series  of  small 


silver  money,  and  the  supposed  right  of  pri- 
vate individuals  to  demand  the  coinage  of 
silver,  it  may  be  well  to  describe  exactly  how 
the  supply  of  silver  coin  is  legally  regulated 
and  practically  carried  out.  There  is  no  la\vr 
statute,  or  common,  which  gives  any  private 
person,  company,  or  institution,  the  right  to 


charges  or  profits  made  for  weighing,  melt-  \  take  silver  to  the  mint,  and  demand  coin  in 


ing,  assaying,  the  turn  of  the  scale,  the  dif- 
ference of  the  assay  reports,  etc.,  which 
amounted  on  the  whole,  including  the  above 
charge  of  one  and  one-half  pence  per  ounce 
for  demurrage,  to  0*2828  per  cent,  on  the 
value  of  the  gold.  The  bank  has  since 
made  some  small  improvements  in  the  mode 
of  conducting  the  business,  but  it  may  still 
be  considered  that  the  cost  of  converting  gold 
bullion  into  sovereigns  is  about  one-fourth 
per  cent. 

Though  every  person  whatever  has  the 
right,  under  the  Coinage  Act,  of  taking  gold 
to  the  mint  and  having  it  coined  free  of 
charge  and  in  order  of  priority  without 
undue  preference,  no  one  ever  does  use  the 
privilege,  except  the  Bank  of  England. 


exchange.  Thus  it  is  left  in  the  hands  of  the 
Treasury  and  the  mint  to  issue  so  much  and 
such  denominations  of  silver  coins  as  they 
may  think  needful  for  the  public  service- 
This  state  of  the  law  is  perfectly  right ;  be- 
cause, as  the  silver  coins  are  tokens,  they 
cannot  be  got  rid  of  by  melting  or  exporta- 
tion at  their  nominal  values.  If  individuals 
were  frtc  »r>  demand  as  much  silver  coin  as 
they  liked,  a  surplus  might  be  thrown  into 
circulation  in  years  of  brisk  trade,  which  in  a 
subsequent  year  of  depressed  trade  would  lie 
upon  people's  hands. 

Practically  speaking,  the  mint  is  guided  in 
the  supply  of  silver  coin  by  the  Bank  of 
England,  not  because  this  bank  has  by  law 
any  special  powers,  privileges,  or  duties  in 


During  an  inquiry  into  the  Bank  Act  in  1857,  I  the  matter,  but  because,  in  acting  as  the  bank 
Mr.  Twells  stated  that  he  had  once  sent  of  banks,  and  the  bank  ot  government  de- 
j£io,ooo  to  the  mint,  and  was  afterward  sur-  I  partments,  it  has  the  best  opportunities  of 
prised  to  find  his  firm  of  Spooner  and  Co.  judging  when  more  coin  is  wanted.  Not 
mentioned  in  a  parliamentary  paper  as  the  [  only  do  all  the  London  bankers  draw  silver 
only  private  firm  that  had  ever  done  such  a  i  coin  from  the  Bank  of  England  when  they 
thing.  The  directors  of  the  Bank  of  Eng-  j  need  it,  but  the  same  is  done  directly  or  in- 
land have  naturally  acquired  the  monopoly  j  directly  by  all  the  other  bankers  in  the  king- 
of  transactions  with  the  mint,  because  they  dom.  A  deficiency  of  silver  coin  in  any 
have  to  keep  large  stocks  both  of  coin  and  county  is  shown  by  the  stock  of  the  local 
bullion  to  meet  the  demands  of  the  Issue  |  bankers  running  down.  They  replenish  their 
Department  and  of  their  customers,  includ-  '  stocks  either  from  the  nearest  branch  of  the 
ing  directly  or  indirectly,  the  whole  of  the  '  ' 
bankers  of  the  United  Kingdom.  They  can 
convert  portions  of  their  bullion  into  coin 
without  any  loss  of  interest  or  cost,  whenever 
they  find  the  stock  of  coin  running  down. 
They  feel  the  monetary  pulse  of  the  whole 
community,  and  they  have  all  the  requisite 


Bank  of  England  or  from  their  London 
agents,  who  again  draw  from  the  Bank  of 
England.  At  other  times  or  places  the 
bankers  tend  to  accumulate  a  surplus  of  sil- 
ver coin.  Some  banks  in  a  large  town  may 
happen  to  have  accounts  with  many  shop- 
keepers, butchers,  brewers,  cattle-dealers,  or 


appliances  for  the  custody,  assay,  or  exact  j  dealers  of  one  kind  or  another,  who  deposit 
weighing  of  bullion.  Even  those  persons  silver  coin  in  large  quantities.  Other  banks 
who  need  to  possess  large  sums  of  gold  often  may  be  largely  drawn  upon  by  manufacturers 
employ  the  bank  to  weigh,  pack,  and  ware-  I  for  the  payment  of  wages,  and  muy  suffer 
house  it,  and  the  bank  is  always  willing  to  do  •  from  a  deficiency  of  silver  coin.  It  is  a  com- 
mon practice,  therefore,  for  bankers  in  any 
locality  to  assist  each  other  by  buying  or  sell- 
ing superfluous  silver  coin  as  the  case  may- 
require.  If  a  superfluity  of  coin,  however. 


the  work  for  fixed  low  charges.  Hence  it  te 
most  natural  and  convenient  that  the  bans 
should  act  as  the  agent  of  the  mint.  Though 
the  bank  makes  a  certain  profit  out  of  the 


business,  it  is  hardly  earned  at  the  cost  of  |  cannot  be  got  rid  of  in  this  way,  it  may  be 


the  public,  but  rather  comes  out  of  the  econ- 
omy with  which  tt<e  work  i?  managed.  It 
could  in  no  way  improve  the  currency  of  the 
country  if  every  one  who  owned  a  few 
ounces  of  gold  were  to  run  with  it  to  the 
mint,  throwing  upon  the  country  the  cost  of 
melting  and  assaving-  insignificant  ingots,  and 


returned  to  the  Bank  of  England  or  one  of 
its  branches.  This  bank  indeed  is  in  no 
way  bound  to  provide  or  receive  large  sums 
in  silver,  and  it  therefore  usually  makes  a 
small  charge  of  about  five  shillings  per  hun- 
dred pounds  to  cover  the  trouble  and  risk. 
In  consideration  of  this  charge  the  bank 


complicating  the  accounts  and  transactions  J  bears  the   cost  of  transmission  by   railway, 
of  the  mint.  c-xamines  the  coin  for  the  detection  of  base 

pieces   and  the  withdrawal   of  worn   coin — 
which  latter  it  sends  to  the  mini  for  recoin- 


SUPPLY    OF    SILVER    COIN. 


On   account   of  the  absurd   misapprehen- 


sions recently  existing  as  to    the  scarcity  of  '  mint. 


age,  and  acts  in  general  as  the  agent  of  the 


84  [82] 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


Having  the  business  so  much  in  its  hands, 
it  is  obvious  that  the  department  of  the  bank 
which  manages  the  receipt  and  issue  of  silver 
coin  can  judge  accurately  when  a  fresh  sup- 
ply of  coin  is  wanted.  Before  the  stock  runs 
too  low  notice  is  given  to  the  mint,  and 
money  is  usually  advanced  to  the  Master  that 
he  may  purchase  silver  bullion  for  coinage. 
/  Under  this  system  it  is  almost  impossible  for 
a  deficiency  of  currency  to  arise  without  be- 
coming known  to  the  mint,  and  if,  two  or 
three  years  ago,  the  supply  could  not  be 
made  equal  to  the  sudden  demand,  it  was  be- 
cause the  mint  was  not  supplied  by  govern- 
ment with  machinery  adequate  to  the  growing 
wants  of  the  country.  The  existing  system, 
in  short,  seems  to  be  as  nearly  perfect  as  can 
be  desired,  provided  that  the  mint  be  rebuilt 
:and  organized  in  such  a  manner  as  to  enable 
it  to  meet  any  demand  which  the  fluctuations 
of  trade  may  occasion. 

THE    ROYAL  MINT. 

While  treating  of  the  English  system  of 
metallic  money,  it  is  impossible  to  avoid  ex- 
pressing the  wish  that  the  House  of  Commons 
and  the  government  will  no  longer  delay  a 
complete  reconstruction  of  the  Royal  Mint. 
The  mint  factories,  as  they  now  stand,  were 
very  creditable  to  the  generation  which  erect- 
ed them  ;  but  it  is  needless  to  say  that  in  the 
last  fifty  or  seventy  years  we  have  immensely 
advanced,  both  in  the  art  of  constructing 
machinery  and  in  our  ideas  of  the  arrange- 
ment and  economy  of  manufactories.  What 
should  we  think  of  a  Cotton  Spinning  Com- 
pany, which  should  propose  to  use  a  mill  and 
machinery  originally  constructed  by  Ark- 
wright,  or  to  drive  a  mill  by  engines  turned 
out  of  the  Soho  works  in  the  time  of  Boulton 
and  Watt  ?  Yet  the  nation  still  depends  for 
its  coinage  upon  the  presses  actually  erected 
by  Boulton  and  Watt,  although  much  more 
convenient  coining  presses  have  since  been 
invented  and  employed  in  foreign  and  colo- 
nial mints. 

The  present  mint  workshops  are  quite  in- 
adeq'uate  for  meeting  the  demands  which 
may  be  throne  upon  them  by  the  increasing . 
industry  and  wealth  of  the  United  Kingdom, 
not  to  speak  of  the  British  Empire.  A  few 
years  ago  it  was  impossible  to  turn  out  silver 
coin  as  quickly  as  it  was  required  when  trade 
was  brisk,  and,  while  one  metal  is  being 
•coined,  there  are  no  means  of  meeting  the 
demand  for  other  kinds  of  coin.  As  to  the 
bronze  coinage,  it  has  generally  to  be  obtain- 
ed from  Birmingham  presses,  and  bronze 
blanks  have  also  to  be  purchased  at  times. 
Even  silver  blanks  have  been  obtained  from 
Birmingham.  The  British  mint  ought  to 
represent  the  skill  and  wealth  of  the  British 
nation,  and  no  petty  considerations  should 
be  allowed  to  postpone  so  necessary  a  reform. 

Nothing  short  of  a  complete  reconstruc- 
tion of  the  mint  workshops  will  meet  the 
requirements  of  the  case.  If  this  is  to  be 


done,  much  convenience  and  economy  will 
arise  from  abandoning  the  large  and  valuable 
site  upon  Tower  Hill,  and  erecting  an  en- 
tirely new  mint  in  a  more  accessible  position. 
The  opinions  of  Mr.  E.  Seyd  upon  this  sub- 
ject are  worthy  of  much  attention. 


CHAPTER  XI. 


FRACTIONAL  CURRENCY 

One  monetary  question  which  can  hardly 
be  said  to  be  satisfactorily  solved  as  yet,  is 
that  of  selecting  the  best  possible  material 
for  coins  of  small  value,  called  in  English 
pence,  in  French  monnaie  <f appoint.  The 
fractional  coins  should  be  equal  in  value  to 
about  a  tenth  part  of  the  silver  ones,  coin 
for  coin,  but  it  unfortunately  happens  that 
there  is  no  suitable  metal  of  which  the  value 
is  now  one-tenth  part  of  that  of  silver.  In 
the  time  of  the  Romans,  gold  was  about  ten 
times  as  valuable  as  silver,  and  silver  about 
ten  times  as  valuable  as  copper,  so  that  there 
would  then  have  been  no  difficulty  in  con- 
structing a  perfect  decimal  system  of  money. 

To  throw  light  upon  this  subject;  I  have 
drawn  out  the  following  table,  in  which  are 
shown  the  weights  of  the  principal  commer- 
cial metals  which  are  of  equal  values  at  pres- 
ent. The  numbers  in  such  a  table  must  of 
course  be  subject  to  perpetual  fluctuations, 
according  to  the  changes  in  the  market 
prices  of  the  metals.  In  some  cases,  too,  it 
is  difficult  to  find  any  accurate  quotations 
at  all,  and  the  price  often  depends  greatly 
on  the  manufactured  state  of  the  metal. 
Gold  and  silver  are  taken  as  of  standard  fine- 
ness, and  gold  forms  the  unit. 

EQUIVALENT   WEIGHTS   OF  THE  PRINCIPAL 
METALS. 


Gold      . 
Platinum  . 
Aluminium 
Silver    .     . 
Nickel 


i 

314 
7 
16 


Tin       . 
Copper    . 
Lead     . 
Bar  Iron  . 
Pig  Iron 


942 

1,696 

6,360 

15,900 

50,880 


It  may  be  worthy  of  notice  that  when  we 
thus  draw  out  what  may  be  called  the  com- 
<nercial  equivalents  of  the  metals,  they  are 
found  to  form  a  series  very  rudely  approxi- 
mating to  a  geometrical  series  with  the  com- 
mon ratio  three.  Silver,  however,  is  an  ex- 
ception. There  is,  too,  one  term  missing 
between  nickel  and  tin,  and  as  tin  is  not  a 
coinable  metal,  there  is  a  wide  interval  be- 
tween nickel  and  copper,  and  a  still  wider  one 
between  silver  and  copper.  At  present  silver 
is  almost  exactly  one  hundred  times  as  valu- 
able as  copper  ;  hence  copper  pence  must 
either  contain  in  metallic  value  but  a  fraction 
of  the  nominal  value,  or  else  they  must  be 
very  heavy  and  bulky.  When  a  new  copper 
coinage  was  issued  in  England  from  the  mint 
of  Boulton  and  Watt  :n  1797,  the  coins  were 


MONEY  AND  TI1K  MECHANISM  OF  EXCHANGE. 


[83]  35 


made  nearly  of  standard  weight,  at  the  rate 
of  an  ounce  avoirdupois  for  each  penny. 
There  was  a  double  inconvenience  in  this. 
Sixteen  pence  actually  weighed  a  pound  avoir- 
dupois, at  which  rate  the  people  would  now 
be  carrying  three  times  as  great  a  weight  in 
their  pockets  as  with  our  bronze  currency. 
Moreover,  the  price  of  copper  having  risen, 
Boulton's  pence  became  more  valuable  as 
nietni  than  as  coins,  and  were  used  as  mate- 
rial in  spite  of  their  beautiful  execution. 

first  and  most  obvious  course  was  to 
reduce  the  weight  of  the  penny,  making  it 
purely  a  token  coin.  The  old  pennies  of 
Victoria  weighed  about  290  grains  each, 
instead  of  about  433  grains,  as  in  the  coinage 
of  Boulton  and  \Vatt,  a  reduction  of  about 
one-third  part.  The  bronze  penny  has  been 
still  further  reduced,  and  ought  to  weigh 
145  "8  grains. 

There  are  two  inconveniences  which  may 
arise  from  too  great  and  sudden  a  reduction 
in  the  weight  of  token  currency.  There  is  a 
risk  of  the  population  rejecting  the  new  coins 
as  fraudulently  light.  This  was  the  case 
with  the  new  copper  five  and  ten-centime 
pieces,  struck  in  France  in  1794  by  the  Rev- 
olutionary Government,  at  the  rate  of  one 
gram  for  each  centime,  which  was  harf  the 
previous  rate.  The  government  was  obliged 
to' call  in  the  light  coin  and  issue  it  again  at 
the  old  weight,  and  only  in  the  time  of 
Napoleon  III.  could  coins  of  one  gram  per 
centime  be  put  into  circulation.  The  people, 
then,  must  be  educated  to  receive  very  light 
tokens,  and  the  reduction  must  be  made  by 
moderate  steps. 

In  the  second  place,  if  the  metal  is  easily 
coined  or  manipulated  like  copper,  if  it  fails 
to  retain  a  very  good  impression,  and  if  there 
is  a  considerable  margin  for  profit,  the  temp- 
tation to  false  coiners  might  become  strong. 
I  am  not  aware  that  this  has  ever  happened 
in  regard  to  the  English  copper  coinage,  but 
counterfeit  sous  used  to  be  manufactured  on 
a  large  scale  in  the  Faubourg  Saint  Antoine, 
in  Paris,  almost  under  the  eyes  of  the  govern- 
ment. 

At  the  best,  too,  pure  copper  makes  indif- 
ferent coin,  being  deficient  in  hardness,  so 
that  it  soon  becomes  disfigured  ;  it  has  a 
disagreeable  odor  which  it  communicates  to 
the  fingers  ;  and  when  exposed  to  damp  air 
it  becomes  covered  with  verdigris,  which  is 
both  unsightly  and  poisonous.  I  proceed  to 
consider  the  various  ways  in  which  it  has  been 
attempted  to  substitute  for  copper  coin  some 
more  convenient  currency. 

BILLON   COIN. 

Pennies  and  twopenny  pieces,  if  now  made 
of  standard  silver,  like  the  Maundy  money, 
would  be  two  small  and  light  for  use,  weigh- 
ing respectively,  seven  and  one-fourth  and 
fourteen  and  one-half  grains.  Even  the 
threepenny  pieces,  now  so  abundant  in  Eng- 
and,  and  weighing  21 '8  grains  each,  are  in- 


conveniently small.  In  England,  for  a  very 
long  time,  no  silver  has  been  coined  of  less 
fineness  than  the  old  standard  of  925  parts  in 
looo.  In  many  continental  countries  the 
smaller  currency  has  been  made  of  a  very  low 
alloy  of  silver  and  copper  called  billon.  Such 
coins  were  at  one  time  current,  to  a  certain 
extent,  in  France,  the  metal  containing  only 
one  part  of  silver  in  five  of  alloy,  but  they 
have  long  been  recalled.  In  Norway  the 
small  currency  now  consists  partly  of  half- 
skilling  and  one-skilling  pieces  in  copper,  the 
skilling  being  nearly  equal  in  value  to  an 
English  halfpenny,  but  principally  of  two, 
three,  and  four-skilling  pieces,  composed  of 
billon,  containing,  according  to  an  analysis 
performed  for  me  at  the  Owens'  College 
chemical  laboratory,  one  part  of  silver  and 
three  of  copper.  These  billon  pieces  are 
very  convenient  n  size,  and,  being  for  the 
most  part  newlyi  ssued,  are  clean  and  neat. 
Billon  is  still  being  coined  in  Austria. 

It  is  in  the  states  now  forming  the  German 
empire  that  billon  coins  have  been  most  ex- 
tensively used,  especially  in  pieces  of  three, 
four,  and  six  kreutzers,  the  so-called  scheid- 
emunze  now  being  recalled.  This  consists  of 
silver  alloyed  with  three,  four,  or  more  times 
its  weight  of  copper.  Before  such  base  silver 
is  passed  through  the  coining  press,  it  is 
usual  to  dissolve  the  copper  from  the  surface 
of  the  blank  pieces  of  metal,  so  as  to  produce 
a  film  of  pure  white  silver  upon  the  surface. 
This  operation,  called  coloring,  gives  a  fine 
bright  appearance  to  the  coins  when  new, 
and  they  are  easily  put  into  circulation.  But 
after  a  little  time  the  silver  film  is  worn  off, 
and  the  coins  assume  a  very  patchy  aspect. 
Billon  coinage  seems  to  have,  too,  an  extra- 
ordinary power  of  accumulating  a  layer  of 
dirt  of  a  very  disagreeable  character,  with 
which  all  travelers  in  Germany  in  past  years 
must  be  well  acquainted.  Moreover,  it  offers 
great  facilities  to  the  counterfeiter,  and  for 
several  sufficient  reasons  cannot  be  recom- 
mended for  adoption. 

COMPOSITE    COIN. 

It  is  said  that  Saint  Louis,  the  great  King 
of  France,  finding  much  want  of  small 
money  to  pay  his  soldiers,  caused  little  pieces 
of  silver  wire,  weighing  nine  and  eighteen 
grains,  to  be  fixed  on  pieces  of  stamped 
leather,  and  circulated  for  one-  and  two-dime 
pieces.  The  silver  gave  the  value  and  the 
leather  served  as  a  case  or  handle  to  preserve 
the  small  bit  of  metal  from  being  lost.  In 
recent  times,  composite  coins,  having  a  center 
piece  of  silver  and  a  rim  of  copper,  were 
constructed  on  similar  principles.  A  model 
penny  of  this  kind  has  an  agreeable  appear- 
ance and  a  convenient  size,  but  seems  to  be 
subject  to  several  objections.  The  cost  of 
coinage  would  be  considerable  ;  the  coins 
could  hardly  be  made  so  perfect  that  the 
center  would  not  come  out  sometimes ;  the 
contact  of  dissimilar  metals  would  set  up 


36  [84] 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


electro-chemical  action,  and  the  copper  would 
be  corroded  ;  and,  lastly,  it  would  be  difficult 
to  detect  counterfeit  silver  pieces  inserted  by 
the  forger.  Composite  coins  of  a  similar 
character  were  struck  in  France  under  Napo- 
leon I.,  about  the  year  1810,  but  were  never 
circulated.  Pennies  formed  of  a  copper  cen- 
ter with  a  brass  rim  have  been  employed  in 
England,  and  tin  pence,  halfpence,  or  far- 
things, with  a  copper  plug  inserted  near  the 
center,  were  long  used,  and  are  plentiful  in 
numismatic  cabinets. 

BRONZE  COIN. 

It  was  known,  even  in  prehistoric  times, 
that  a  small  quantity  of  tin  communicated 
hardness  to  copper,  and  the  ancient  nations 
were  familiar  with  the  use  of  bronze  thus 
manufactured.  The  French  Revolutionary 
Government  melted  up  the  bells  of  the 
churches  seized  by  them,  and  the  sotis  de 
cliche,  as  they  were  called,  made  from  the 
bell  metal,  were  superior  to  coins  of  pure 
copper.  Yet  curiously  enough  no  modern 
government  thought  of  employing  a  well- 
chosen  bronze  for  small  money,  until  the 
government  of  the  late  Emperor  of  the 
French  undertook  the  recoinage  of  the  old 
sous  in  1852.  This  recoinage  was  carried 
out  with  great  success. 

Between  the  years  1853  and  1867  coins  to 
the  nominal  value  of  about  two  millions  ster- 
ling, consisting  of  800  millions  of  pieces, 
and  weighing  eleven  millions  of  kilograms 
(10,826  tons)  were  struck,  in  addition  to  a 
subsequent  issue  of  about  two  hundred  mil- 
lions of  pieces.  The  experiment  was  in  al- 
most every  way  successful.  The  ten  and  five- 
centime  pieces  now  circulating  in  France  are 
models  of  good  minting,  with  a  low  but  sharp 
and  clear  impression.  They  were  readily  ac- 
cepted by  the  people,  although  only  weighing 
as  much  as  the  sous  rejected  in  the  time  of 
the  Revolution,  namely,  one  gram  per  cen- 
time, and  they  are  wearing  well. 

The  bronze  used  consists  of  ninety-five  parts 
of  copper,  four  of  tin,  and  one  of  zinc.  It  is 
much  harder  than  copper,  yet  so  tough  and 
impressible  that  it  takes  a  fine  impression 
from  the  dies,  and  retains  it  for  a  long  time. 
It  cannot  be  struck  except  by  a  press  of  some 
power,  and  thus  counterfeiting  is  rendered 
almost  impossible.  It  can  hardly  be  said  to 
corrode  by  exposure  to  air  or  damp,  and 
merely  acquires  a  natural  patina,  or  thin  dark 
film  of  copper  oxide,  which  throws  the  worn 
part  of  the  design  into  relief,  and  increases 
the  beauty  of  the  coin. 

Bronze  has  since  been  coined  by  the  gov- 
ernments of  England,  the  United  States, 
Italy,  and  Sweden,  and  it  seems  probable* 
that  it  will  entirely  take  the  place  of  copper. 
The  German  Government  is  now  using 
bronze  for  the  one-pfennig  pieces. 

ENGLISH   BRONZE  COIN. 

The  old  copper  coinage  of  the   United 


Kingdom  was  replaced  from  ten  to  fifteen 
years  ago,  by  a  much  more  convenient  and 
elegant  series  of  pence,  half-pence,  and  far- 
things, struck  in  exactly  the  same  kind  of 
bronze  as  the  French  centime  pieces.  The 
English  coins,  though  far  from  being  so 
well  executed  as  the  French  ones,  are  clean, 
and  likely  to  wear  well.  The  only  great 
objection  which  can  be  raised  to  them,  is  that 
they  are  still  of  considerable  size  and  weight, 
although  less  than  the  old  copper  coins.  As- 
all  the  latter  are  now  withdrawn,  and  few  of 
the  new  ones  can  yet  be  lost  or  destroyed, 
we  know  very  accurately  the  amount  of  the 
English  fractional  currency.  The  whole 
amount  issued  in  the  years  1861  to  1873  is 
as  follows: — 

Weight      Number  of  Nominal 

in  tons.          pieces.  value  in 

pounds  steiling. 

Pennies  .  1,585  170,41^9,000  ,£710,082 
Halfpennies  .  918  164,505,000  342,719. 
Farthings  .  .  149  53,594,000  55,826 

2,652      388,518,000    1,108,627 

Including  a  small  amount  issued  before 
1861,  the  whole  value  of  the  bronze  coin  put 
into  circulation  up  to  the  end  of  1873  was 
;£i,  143,633.  It  is  remarkable  that  the 
quantity  of  small  coins  used  in  England  is- 
much  less  than  in  France,  where  at  least 
1000  millions  of  pieces,  chiefly  of  ten  and 
five  centimes,  are  in  use.  Thus  while  the 
English,  Scotch,  and  Irish  seem  to  be  suf- 
ficiently supplied  with  eight  and  a-half  pence 
per  head,  the  French  employ  on  the  average 
one  franc  sixty  centimes,  (fifteen  pence),  the 
Belgians,  two  francs  twenty-six  centimes 
(twenty-one  and  a-half  pence),  and  the  Ital- 
ians as  much  as  three  francs  ten  centimes 
(twenty-nine  and  a-half  pence). 

WEIGHT   OF   THE    CURRENCY. 

It  is  curious  that  the  weights  of  the  sev- 
eral kinds  of  currency  vary  inversely  as^ 
their  nominal  values;  thus,  taking  the  paper 
circulation  of  the  United  Kingdom  at  forty 
millions,  the  gold  roughly  at  one  hundred 
millions,  the  silver  at  fifteen  millions,  and 
the  bronze  as  above,  I  find  the  weights  to  be 
approximately  as  follows: — 

Paper  currency  .         .  .  16  tons. 

Gold         "         .  .         .  .  786    ' 

Silver       "         .  ...  .  1670    ' 

Bronze                .  .         .  .  2652    ' 

5124  tons. 

It  is  impossible  to  give  a  satisfactory  rea- 
son why  the  least  valuable  part  of  the  cur- 
rency should  be  so  much  the  most  weighty. 
A  tendency  thus  arises  for  the  pence  to  accu- 
mulate upon  the  hands  of  retail  traders,  es- 
pecially publicans,  omnibus  proprietors,  and 
n  ewspaper  publ  ishers .  At  one  ti  me  the  Lon  don 
brewers  had  such  large  quantities  of  bronze 
coins  thrown  upon  their  hands  from  the  pub- 


MONEY  AND  Till-    M  LCI  I  AN  ISM  OF  KXCHANGF.. 


[80]  37 


lie-houses  which  they  own,  that  the  mint  had 

eventually  to  arrange  to  buy  it   from  them, 

,1  of  coining  more.     In  large  towns,  ar- 

•nents  have  to  be  made  for  getting  rid 

of   the   accumulating   pence   with    the   least 

trouble    and    loss ;    the    coin    is    transferred 

weekly  to  mills  and   factories,   where   it   is 

in    paying  wages.     Bankers  refuse  to 

nything  to  do  with  bronze  coin  beyond 

the  amount  of  a  shilling,  for  which  it  is  legal 

tender,  and  it  is  usual  for  persons  to  object 

to  receive  more  than  twopence  or  threepence 

of  change  in  pence. 

It  is  worthy  of  inquiry  whether  this  ten- 
dency of  the  fractional  currency  to  stagnation 
would  not  be  remedied  by  the  substitution  of 
a  much  lighter  and  more  elegant  currency  of 
nickel,  or  of  some  alloy  yet  to  be  invented. 
In  France,  it  is  found  that  the  bronze  coin- 
age circulates  much  more  freely  than  the  old 
copper  and  bell  metal  sous,  which  tended  to 
accumulate  in  certain  localities.  Our  bronze 
pence  are  much  bet'er  than  the  old  copper 
pence,  but  it  does  not  follow  that  we  have 
in  any  degree  approximated  to  perfection. 
Coins  of  about  half  the  weight  of  those  in 
circulation  would  be  much  more  convenient. 

NICKEL,  MANGANESE.  ALUMINIUM, AND  OTHER 
METAl.S   AND    ALLOYS. 

The  employment  of  nickel  in  the  manufac' 
tureof  small  money  has  already  been  referred 
to  (Chapter  VI.),  and  if  the  conditions  of  sup- 
ply and  demand  of  this  metal  were  more  steady 
we  should  perhaps  want  nothing  better.  The 
alloy  of  nickel  and  copper  generally  used  is 
hard  and  difficult  to  coin,  but  it  takes  a  fine 
impression  which  it  will  probably  require  long 
wear  to  efface.  Nickel  coinage  is  thus  very 
unlikely  to  be  counterfeited,  and  its  peculiar 
nondescript  color  renders  it  easily  distinguish- 
able from  silver  or  gold  money.  The  pro- 
gress of  metallurgy,  however,  is  making  us 
acquainted  with  several  new  metals  and  many 
new  alloys,  and  it  is  quite  likely  that  some 
new  material  for  fractional  money  will  event- 
ually be  found.  Dr.  Percy,  having  regard  to 
the  rising  price  of  nickel,  suggests  that  man- 
ganese should  be  employed  instead,  as  it 
gives  alloys  of  similar  character,  and  can  be 
procured  in  greater  quantities. 

Dr.  Clemens  Winkler  strongly  recommend™, 
aluminium  as  suited  for  monetary  pur- 
poses. Trial  pieces,  marked  "^  real,  1872," 
have  been  struck,  and  one  of  them  may  be 
seen  in  the  Monetary  Museum  at  the  Paris 
mint.  This  metal  has  a  characteristic  bluish 
white  color,  but  its  great  advantage  is  its  low 
specific  gravity.  The  trial  piece  i:i  question, 
of  which  a  specimen  was  furnished  to  me  by 
Mr.  Roberts,  the  chemist  of  the  English 
mint,  is  two  centimeters,  o'7Q  inch,  in  diam- 
eter, a  little  wider  than  a  sixpence  and  much 
thicker,  and  yet  weighs  only  one  gram,  or 
fifteen  and  a-half  grains.  Were  our  pence 
and  halfpennies  as  light  and  convenient  as 
this  coin,  we  could  carry  many  of  them  in 


!  the  pocket  without  discomfort.      The  chief 

!  difficulty  in  adopting  such  a  new  metal  would 

1  arise  from  the  uncertain  price  at  which  it  can 

j  be  produced.      It  is  unknown,   too,   how  it 

would  wear.     Even   if  pure  aluminium  were 

found  to  be  unsuitable  for  coining,  some  of 

its    remarkable   alloys    might    be   employed 

instead.    Mr.  Graham,  the  late  Master  of  the 

Mint,  had  a  series  of  trial  pieces  of  one  to 

ten  cents  struck  in  the  so-called  "aluminium 

bronze." 

I  may  suggest  that  one  of  the  best  possi 
ble  materials  for  small  money  would  be  steel- 
provided  it  could  be  prevented  from  rusting. 
Steel  coins  would  be  difficult  to  strike,  but 
when  once  struck  could  be  hardened,  so  as 
to  be  almost  indestructible.  The  cheapness 
of  the  material  would  allow  of  their  produc- 
tion on  a  large  scale  at  small  cost,  while  they 
could  not  possibly  be  imitated  by  the  false 
coiners  with  any  profit.  Hence  it  would  be 
needless  to  pay  any  attention  to  the  metallic 
value  of  the  coins,  which  might  be  struck  of 
the  most  convenient  sizes,  probably  those  of 
the  sixpence  and  shilling.  Now  it  has  been 
pointed  out  by  Sir  John  Herschel  (Physical 
Geography,  reprinted  from  the  "  Encyclo- 
paedia Britannica,"  §  320,  p.  289),  that  steel 
appears  to  be  protected  from  rusting  by  be- 
ing alloyed  with  a  small  quantity  of  nickel; 
this  at  least  is  the  effect  in  the  case  of  mete- 
oric iron.  It  is  much  to  be  desired  that  such 
an  alloy  should  be  fairly  tried.  I  am  inform- 
ed by  Mr.  Roberts,  that  silver  also  alloys 
well  with  iron  or  steel,  and  that  such  mix- 
tures have  been  proposed  for  coining  pur- 
poses. An  alloy  of  silver,  copper,  and  zinc 
has  already,  indeed,  been  fully  tested  in 
Switzerland,  where  it  is  used  for  twenty,  ten, 
and  five- centime  pieces.  These  coins  are 
convenient  in  size,  but  have  a  poor  yellowish 
white  appearance.  They  have  not  been 
adopted,  so  far  as  I  know,  by  any  other 
country  ;  and  there  seems  to  be  no  use  in 
putting  silver  into  them,  as  it  would  proba- 
bly be  easy  to  produce  a  similarly  colored 
alloy  without  silver. 

It  is  a  misfortune  of  what  may  be  called 
the  science  of  monetary  technology,  that  its 
study  is  almost  of  necessity  confined  to  the 
few  officers  employed  in  government  mints. 
Hence  we  can  hardly  expect  the  same  ad- 
vances to  be  made  in  the  production  of 
money  as  m  other  branches  of  manufacture, 
where  there  is  wide  and  free  competition. 
Moreover,  it  is  very  difficult  to  get  an  oppor- 
tunity of  testing  any  new  kind  of  coin  ;  in  a 
large  currency,  like  that  of  the  United  King- 
dom, it  is  almost  impossible  to  execute  ex- 
periments. But  it  may  be  suggested  that  the 
English  mint,  in  supplying  coins  for  some 
of  the  smaller  British  colonies  and  posses- 
sions, enjoys  an  admirable  opportunity  for 
testing  new  proposals.  This  need  not  in- 
volve any  cost  to  such  colonies,  as  the  Eng- 
lish government,  in  striking  a  few  hundred 
or  thousands  of  pounds  worth  of  small  coia 


38  [80] 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


for  a  colony,  might  readily  engage  to  with- 
draw them  at  its  own  cost  if  found  unsuitable 
after  a  certain  number  of  years. 


CHAPTER  XII. 


THE  BATTLE  OF  THE  STANDARDS. 


Western  Europe,  and  those  who  uphold  SL 
gold  standard  combined  with  subsidiary  coin- 
ages of  silver  and  small  money,  somewhat  in 
the  manner  of  the  English  system.  The  ad- 
vantages of  the  double  standard  have  been 
most  ably  advocated  by  MM.  Wolowski, 
Courcelle-Seneuil,  Seyd,  Leon,  Prince-Smith, 
and  others,  while  MM.  Chevalier,  De  Parieu, 
Hendriks,  Frere  Orban,  Levasseur,  Feer- 
Herzog,  and  Juglar,  have  been  some  of  the 
leading  upholders  of  the  gold  standard.  The 
literature  of  the  subject  is  very  extensive  and 
to  most  readers  dreary  in  the  extreme,  but  I 
will  try  to  give  a  tolerably  concise  statement 
of  the  principal  arguments. 

In  the  first  place,  I  have  no  doubt  what- 
ever that  M.  Wolowski  is  theoretically  quite 
correct  in  what  he  says  about  the  compen- 
satory action  of  the  double  standard  system. 
English  writers  seem  completely  to  have  mis- 
understood the  question,  asserting  that  the 
system  exposes  us  to  the  extreme  fluctuations 


Ever  since  the  great  discoveries  of  gold  in 
California  and  Australia  began  to  disturb  the 
value  of  that  metal  relatively  to  silver  and  to 
other  commodities,  it  has  been  a  continual 
subject  of  discussion  what  standard  of  value 
should  be  ultimately  adopted.  There  have 
been  partisans  of  the  now  antiquated  silver 
standard,  of  the  double  standard,  and  of  the 
gold  standard.  Having  in  England  long 
possessed  a  gold  standard,  we  have  been  only 
in  a  secondary  degree  concerned  in  such  dis- 
cussions, upon  which  quite  a  library  of  works 
has  been  written  by  distinguished  French, 
Belgian,  German,  Swiss,  Italian,  and  Dutch 
economists.  The  changes  actually  effected 
in  the  currencies  of  Europe  since  1849  are 
of  the  most  extensive  character.  Some 
nations  have  more  than  once  changed  their 
policy.  Holland,  anticipating  a  great  fall  in 
the  value  of  gold,  adopted  silver  as  the  single 
Standard  of  value  in  1850.  This  change  had 
to  be  effected  at  considerable  pecuniary  loss, 
and  it  is  understood  that  Holland  is  again 
exposed  to  the  trouble  and  expense  of  having 
to  admit  a  gold  standard,  either  as  a  sole  legal 

tender,  like  Germany,  or   else  concurrently   gM  and  sUver  standard.  \ 

with  a  restricted  silver  coinage    like  Belgium  j  er   jn       .e  than    fiye  sh}llings  thirteen-six- 
and  the  other  monetary  allies  of  France  teenths  of  a  ou         silver  becOmes 

From  the  time  of  Locke  to  that  of  Lord  -r      •  '         •• 


of  both  metals, 
silver  are  both 
amounts,  there 


No  doubt,  when  gold  and 
legal  tenders  to  unlimited 
will  be  a  tendency  to  pay  in 


that  metal  which  is  overrated  in  the  legal 
ratio  of  fifteen  and  a-half  to  one.  Only 
when  the  price  of  standard  silver  is  exactly 
five  shillings  and  thirteen-sixteenths  of  a 
penny  per  ounce  is  it  a  matter  of  indifference 
in  France  whether  a  debt  be  paid  in  gold  or 
silver,  and  this  exact  price  has  only  been 
quoted  a  few  times  in  the  London  market 
in  the  last  thirty  years.  Accordingly,  it  has 
been  urged  that  the  double  standard  is  not 
really  a  double  one,  but  only  an  alternative 
When  silver  is  low- 


Liverpool,  the  comparative  advantages  of 
gold  and  silver,  as  the  principal  measure  of 
value,  were  a  frequent  subject  of  discussion 
among  English  political  writers.  Locke  and 
most  of  the  earlier  English  economists  upheld 
silver.  Lord  Liverpool  definitely  decided 
English  policy  in  favor  of  gold,  and  the  ten- 
dency of  opinion  is  now  strongly  in  the  same 
direction.  Several  countries  have  recently 
changed  from  silver  to  gold,  and  since  the 


the  standard;  when  silver  rises  above  this 
price,  gold  takes  its  place  as  the  real  measure 
of  value. 

So  far,  the  English  economists  are  no 
doubt  correct;  but,  in  the  first  place,  it  does 
not  follow  that  the  prices  of  commodities 
follow  the  extreme  fluctuations  of  value  of 
both  metals,  as  many  writers  have  inconsid- 
erately declared.  Prices  only  depend  upon 


the 


of   the   metal  which  happens  to 


since      e  haye  sunk  in  va]ue  bdow  the  l       {   ratio   of 

single  example   of   Holland   no   nation   has  fifteen  and  a_ha]f  tQ  Qne      Now>  if  in  the  ac_ 

passed  from   gold  to  silver.     Even  Austria,  companying.  ngure  we  represent  by  the    line 

•»*Tr\i,r*Vk    ic?    c  f  i    I    c?Mr-vr\*~vco/-i    tr\  rf*r\rf*ct*ri  f-   tVi^   ciltr^r*  ^         J        .        .   °  •  «.« 


which  is  btiil  supposed  to  represent  the  silver 
standard,  has  taken  a  step  toward  a  change 
by  coining  ten  and  twenty-franc  pieces  in 


A  the  variation   of   the  value  of  gold,  as  es- 
timated in  terms  of  some  third  commodity, 


say  copper,  and  by  the  line  B  the  correspond 

gold,  the  inscriptions  ten  francs  and  twenty    .   J     .fSTJ r  *.t-_   i t   „,•!„«»...  +^~ 

francs  now  appearing,  as  well  as  four  gulden 
and  eight  gulden,   on  the  new  gold  coins  of 


Austro-Hungarian  empire. 

THE    DOUBLE    STANDARD. 


ing   variations  of  the  value  of   silver;  then, 
superposing  these  curves,  the   line  C   would 


be    the    curve  expressing 


The  single  silver  standard  having  been 
practically  abandoned  as  regards  the  curren- 
cies of  Europe,  the  battle  has  more  recently 

been  waged  between  the  partisans  of  the  dou-  i  curves  of  gold  or  silver,  but  the  fluctuations 
ble  standard,  represented  in  the  currencies  of  do  not  proceed  to  so  great  an  extent,  a  point 
France  and  the  Monetary  Convention  of  !  of  much  greater  importance. 


the  extreme  fluc- 
tuations of  both  metals.  Now,  the  stand- 
ard of  value  always  follows  the  metal  which 
falls  in  value;  hence  the  curve  D  really 
shows  the  course  of  variation  of  the  stand- 
ard of  value.  This  line  undergoes  more 
frequent  undulations  than  either  of  the 


MONEY   AND  TIIK   MECHANISM    Ul     EXCHANGE. 


1«7J  39. 


6£V\ 


COMPENSATORY    ACTION. 

Nor  is  this  the  whole  error  of  the  English 
writers.  A  little  reflection  must  show  that 
MM.  Wolowski  and  Courcelle-Seneuil  are 
quite  correct  in  urging  that  a  compensatory 
or,  as  I  should  prefer  to  call  it,  equilibra- 
tory  action  goes  on  under  the  French  cur- 
rency law,  and  tends  to  maintain  both 
gold  and  silver  more  steady  in  value  than 
they  would  otherwise  be.  If  silver  becomes 
more  valuable  than  in  the  ratio  of  one  to 
fifteen  and  one-half  compared  with  gold, 
there  arises  a:  once  a  tendency  to  import 
gold  into  any  country  possessing  the  double 
standard,  so  that  it  may  be  coined  there,  and 
exchanged  for  a  legally  equivalent  weight  of 
silver  coin,  to  be  exported  again.  This  is  no 
matter  of  theory  only,  the  process  having 
gone  on  in  France  until  the  principal  cur- 
rency, which  was  mainly  composed  of  silver 
in  1849,  was  in  1860  almost  wholly  of  gold. 
France  absorbed  the  cheapened  metal  in  vast 
quantities  and  emitted  the  dearer  metal, 
which  must  have  had  the  effect  of  preventing 
gold  from  falling  and  silver  from  rising  so 
much  in  value  as  they  would  otherwise  have 
done.  It  is  obvious  that,  if  gold  rose  in 
value  compared  with  silver,  the  action  would 
be  reversed  ;  gold  would  be  absorbed  and 
silver  liberated.  At  any  moment  the  stand- 
ard of  value  is  doubtless  one  metal  or  the 
other,  and  not  both  ;  yet  the  fact  that  there 
is  an  alternation  tends  to  make  each  vary 
muchless  than  it  would  otherwise  do.  It  can- 
not prevent  both  metals  from  falling  or  rising 
in  value  compared  with  other  commodities,  but 
it  can  throw  variations  of  supply  and  demand 
over  a  larger  area,  instead  of  leaving  each 
metal  to  be  affected  merely  by  its  own  acci- 
dents. 

Imagine  two  reservoirs  of  water,  each  sub- 
ject to  independent  variations  of  supply  and 
demand.  In  the  absence  of  any  connecting 


pipe  the  level  of  the  water  in 
each  reservoir  will  be  subject  to 
its  own  fluctuations  only.  But 
if  we  open  a  connection,  the 
water  in  both  will  assume  a  cer- 
tain mean  level,  and  the  effects 
of  any  excessive  supply  or  de- 
mand will  be  distributed  over 
the  whole  aiea  of  both  reser- 
voirs. The  mass  of  the  metals, 
gold  and  silver,  circulating  in 
Western  Europe  in  late  years, 
is  exactly  represented  by  the 
water  in  these  reservoirs,  and 
the  connecting  pipe  is  the  law 
of  the  7th  Germinal,  an  XI, 
which  enables  one  metal  to  take 
the  place  of  the  other  as  an  un- 
limited legal  tender. 

DEMONETIZATION    OF    SILVER. 

M.  Wolowski  has  earnestly 
warned  Europe  against  the  dan- 
ger of  abrogating  the  law  of  the  double 
standard,  and  demonetizing  silver.  Ger- 
many, in  adopting  a  gold  standard,  is  caus- 
ing a  considerable  demand  for  gold,  and 
at  the  same  time  throwing  many  millions  of 
silver  coins  upon  the  market.  Austria,  Den- 
mark Sweden,  and  Norway  are  likely  to 
follow  her  example.  If  other  countries  were 
to  insist  upon  suddenly  having  a  gold  money, 
it  is  evident  that  gold  would  tend  to  rise  in 
value  compared  with  silver,  which  might  be 
largely  depreciated.  If  France,  Italy,  Bel- 
gium and  other  countries  now  possessing 
theoretically  the  double  standard  were  to 
allow  the  free  action  of  their  monetary  laws, 
the  depreciated  silver  would  flow  in  and  re- 
place the  appreciated  gold,  so  that  the 
change  of  values  would  be  moderated  M. 
Wolowski  asserts  that  if  this  compensatory 
action  be  suspended,  and  the  demonetization 
of  silver  be  extended,  there  must  ensue  a  dis- 
astrous rise  in  the  value  of  gold,  thus  ren- 
dered the  sole  standard  of  value.  All  debts 
private  and  public  will  be  legally  due  in  fhis 
metal,  and  all  burdens  will  be  greatly  in- 
creased. 

Within  the  last  year  or  two  the  predictions 
of  M.  Wolowski  may  seem  to  have  been  veri- 
fied in  some  degree.  The  price  of  standard 
silver,  which  was  at  one  time  62 l/^d.  per 
ounce,  has  already  fallen  as  low  as  57^^. 
while  the  demonetization  of  silver  in  Germany 
is  only  partially  accomplished.  The  whole 
effect  of  the  great  discoveries  of  gold  was 
only  to  raise  the  price  from  about  59^^-  to 
a  maximum  of  62*^.,  while  the  double 
standard  system  freely  worked  ;  but  since  its 
action  has  been,  as  we  shall  see,  suspended, 
the  minting  operations  of  a  single  govern- 
ment can  affect  the  price  in  a  greater  degree. 

Agreeing  that  M.  Wolowski  is  entirely  cor- 
rect in  an  abstract  point  of  view,  and  is  justi- 
fied to  some  extent  by  the  course  of  events,  I 
must  adhere  to  the  opinion  which  I  expressed 


40  [88] 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


at  his  request  in  1868,  and  which  was  par- 1 
tially  published  in  his  volume,  "  L'Or  et  ' 
1' Argent  "  (p.  62). 

The  question  seems  to  be  entirely  one  of 
degree,  and  in  the  absence  of  precise  infor- 
mation is  quite  indeterminate.  If  all  the 
nations  of  the  globe  were  suddenly  and  simul- 
taneously to  demonetize  silver,  and  require 
gold  money,  a  revolution  in  the  vs>lue  of  gold 
would  be  inevitable.  But  M.  Wolowski 
seems  to  forget  that  the  nations  of  Europe 
constitute  only  a  small  part  of  the  population 
of  the  world.  The  hundreds  of  millions  who 
inhabit  India  and  China,  and  other  parts  of 
the  eastern  and  tropical  regions,  employ  a 
silver  currency,  and  there  is  not  the  least  fear 
that  they  will  make  any  sudden  change  in 
theii  habits.  The  English  government  has 
repeatedly  tried  to  introduce  a  gold  currency 
in  to  our  Indian  possessions,  but  has  always 
failed,  and  the  gold  coins  now  circulating 
there  are  supposed  not  to  exceed  one-tenth 
part  of  the  metallic  currency.  Although  the 
pouring  out  of  forty  or  fifty  millions  sterling 
of  silver  from  Germany  may  for  some  years 
depress  the  price  of  the  metal,  it  can  be 
gradually  absorbed  without  difficulty  by  the 
eastern  nations,  which  have  for  two  or  three 
thousand  years  received  a  continual  stream 
of  the  precious  metals  from  Europe  If  other 
nations  should  one  after  another  demonetize 
silver,  yet  the  East  may  be  found  quite  able 
to  absorb  all  that  is  thrust  upon  It,  provided 
that  this  be  not  done  too  rapidly. 

As  regards  the  gold  required  to  replace  sil- 
ver, it  does  not  seem  to  be  evident  that  there 
will  be  any  scarcity.  The  adoption  of  the 
gold  standard  does  not  necessarily  involve  the 
cohiing  of  much  gold,  for  some  countries 
may,  like  Norway,  or  Italy,  or  Scotland,  have 
a  principal  currency  almost  entirely  composed 
of  paper.  In  other  countries,  such  as  France 
and  Germany,  the  check  and  clearing  sys- 
tem, which  we  shall  shortly  considt  r,  may 
be  gradually  introduced,  and  may  economize 
to  a  great  extent  the  use  of  the  metallic  cur- 
rency. The  current  supply  of  gold  from  the 
mines  is  still  very  large,  and  we  cannot  be 
sure  that  it  will  not  be  increased  by  fresh 
discoveries  in  New  Guinea,  South  Africa, 
North  and  South  America,  and  elsewhere. 

In  short,  then,  the  amount  of  supply  and 
amount  of  demand  of  both  the  precious  met- 
als depend  upon  a  number  of  accidents, 
changes,  or  legislative  decisions,  which  can- 
not be  in  any  way  predicted.  The  price  of  sil- 
ver has  fallen  in  consequence  of  the  German 
currency  reforms,  but  it  is  by  no  means  cer- 
tain that  it  will  fall  further  than  it  has  already 
done.  That  any  great  rise  will  really  happen 
in  the  purchasing  power  of  gold  is  wholly  a 
matter  of  speculation.  We  cannot  do  more 
than  make  random  guesses  on  the  subject, 
and,  as  a  mere  guess,  I  should  say  that  it  is 
not  likely  to  rise.  Gold  has  since  1851  been 
falling  in  value,  and  an  increased  demand  for 
gold  is  not  likely  to  do  more  than  slacken,  or 


at  the  most  arrest,  the  progress  of  depYecia- 
tion. 

DISADVANTAGES    OF    THE    DOUBLE    STAND- 
ARD. 

While  the  need  for  maintaining  the  system 
of  the  double  standard  is  a  matter  of  specula- 
tion, the  inconveniences  of  the  system  are 
beyond  doubt.  So  long,  indeed,  as  its  oper- 
ation resulted  in  substituting  a  beautiful 
coinage  of  napoleons,  half-napoleons,  and 
five-franc  pieces  in  gold  for  the  old  heavy 
silver  ecus,  there  was  no  complaint,  and  the 
French  people  admired  the  action  of  theh 
compensatory  system.  But  when,  a  year  of 
two  ago,  it  became  evident  that  the  heavy 
silver  currency  was  coming  back  again,  and 
that  the  gold  coin  was  likely  to  form  the  cir- 
culating medium  of  other  nations,  the  matte* 
assumed  a  different  aspect.  The  French,  in 
short,  have  been  educated  to  the  use  of  gold, 
and  they  are  not  likely  to  wish  for  the  return 
of  a  currency  fifteen  and  one-half  times  a9 
heavy  and  cumbrous.  Moreover,  the  change 
involves  a  loss  to  the  community  in  general, 
who  receive  their  debts  in  a  metal  of  lessen- 
ed value;  and  a  part  of  the  benefit  is  reaped 
by  bullion-brokers,  money-changers,  and 
bankers,  for  whom  a  factitious  trade  in  gold 
and  silver  money  is  created  by  the  law  of  tha 
yth  Germinal,  an  XI.  The  statesmen  of  the 
countries  still  maintaining  the  double  stand' 
ard  must  have  reflected  that  other  nations 
showed  no  tendency  whatever  to  adopt  the 
same  system.  Thus,  if  France  were  to  con- 
tinue to  act  as  a  great  compensatory  currency 
pendulum,  she  would  bear  the  cost  and  in- 
convenience, while  other  nations  would  reap 
equally  with  herself  the  advantage  of  the  in- 
creased steadiness  of  value  of  the  precious 
metals.  The  founders  of  the  Monetary  Con- 
vention and  the  advocates  of  International 
Currency  never  intended  to  sacrifice  them, 
selves  to  this  extent  for  the  benefit  of  the 
world.  Accordingly  they  have  in  effect  aban- 
doned the  double  standard. 

When  the  renewed  tendency  to  coin  silver 
five-franc  pieces  in  large  quantities  first  be- 
came apparent,  the  French  government  at 
once  suspended  the  coinage.  Subsequently 
an  agreement  has  been  made  from  year  to 
year  between  France,  Switzerland,  Belgium, 
and  Italy,  that  each  country  shall  coin  only  a 
fixed  quantity  of  silver  ecus  proportional  to 
its  population.  An  agreement  to  the  same 
effect  had  before  existed  as  regards  the  silver 
token  currency  of  two-franc  and  smaller 
pieces;  but  the  coinage  of  ecus,  which  were 
in  theory  standard  coins  and  legal  tender  for 
unlimited  amounts,  had  been  left  unrestrict- 
ed. The  result  of  the  limitation  of  coinage 
now  imposed  is  to  destroy  the  action  of  the 
double  standard  system.  Silver  being  coined 
only  in  limited  quantities  cannot  replace  and 
drive  out  the  gold,  and  the  five-franc  pieces, 
although  worth  more  than  five  single  franc 
pieces,  are  worth  less  than  the  fourth  part  of 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


[S-..J  41 


a  napoleon  or  twenty-franc  piece  in  gold. 
Although,  so  far  as  1  understand,  they  re- 
main a  legal  tender  for  unlimited  amounts, 
they  cannot  be  had  in  unlimited  quantities, 
and  are  thus  practically  reduced  to  the  rank 
of  token  coins.  By  the  least  possible  legisla- 
.lange,  the  French  and  other  govern- 
ments of  the  Monetary  Convention  have  thus 
practically  abandoned  the  double  standard, 
and  have  adopted  one  which  is  hardly  distin- 
guishable from  the  composite  legal  tender  of 
England  and  Germany.  Ever  since  1810 
copper  or  bronze  money  had  only  been  legal 
tender  in  France  to  the  amount  of  four  francs 
ninety-nine  centimes,  and  since  the  fineness 
of  the  smaller  silver  currency  was  lowered, 
this  money  also  was  restricted  as  a  legal  ten- 
der to  the  amount  of  fifty  francs  for  any  one 
payment  between  individuals,  or  to  the 
amount  of  one  hundred  francs  for  any  pay- 
ment to  the  public  treasuries.  The  silver 
ecu  forms  the  single  link  by  which  France 
holds  to  the  double  standard,  and  this  link  is 
half  severed. 

It  is  remarkable  that  the  changes  thus  ef- 
fected in  the  money  of  Western  Europe  are 
almost  the  same  as  those  by  which  the 
United  States  had  previously  abandoned  the 
double  standard.  Until  the  year  1853  the 
silver  dollar  of  the  United  States  mint  was  a 
standard  coin  of  unrestricted  legal  tender, 
concurrently  with  the  gold  coinage  of  eagles 
and  their  fractions.  The  legal  ratio  of  silver 
to  gold  in  weight  indeed,  was  sixteen  to  one, 


of  exchange.  This  system  is  now  adopted 
throughout  Great  Britain  and  Ireland,  the 
Australian  colonies,  and  New  Zealand,  the 
African  colonies,  and  many  of  the  minor 
possessions  of  the  British  empire.  It  has  ex- 
isted for  some  tyne  in  Portugal,  Turkey, 
Egypt,  and  in  several  of  the  South  American 
States,  such  as  Chili  and  Brazil.  It  has  been 
established  by  recent  legislation  in  the  Ger- 
man empire,  and  also  in  the  Scandinavian 
kingdoms  of  Denmark,  Norway,  and  Sweden, 
where  a  gold  currency,  and  principal  legal 
tender,  of  twenty-kroner  pieces,  is  now  being 
issued.  Even  Japan  has  imitated^  European 
nations,  and  introduced  a  gold  coinage  of 
twenty,  ten,  five,  two,  and  one-yen  pieces, 
being  only  three  per  mille  less  than 


the  American  gold  dollar.  The  new  fraction- 
al money  of  Japan  is  to  consist  of  fifty,  twen- 
ty, ten,  and  five-sen  pieces  in  silver,  the  sen 
corresponding  to  a  cent,  and  forming  a  token 
money  at  uie  fineness  of  eight  parts  in  ten. 

The  double  standard  is  still  theoretically 
maintained  in  France,  Italy,  Belgium,  Switz- 
erland. Spain,  Greece,  and  Roumania  have 
also  in  recent  years  reformed  their  curren- 
cies in  imitation  of  :he  French  system,  and 
must,  I  suppose,  be  considered  as  having  a 
double  standard.  In  the  New  World,  Peru, 
Ecuador,  and  New  Grenada,  profess  to  have 
the  same  system. 

A  few  years  ago  a  very  considerable  part 
of  Europe  might  have  been  classed  as  retain- 
ing the  ancient  system  of  a  single  silver  stand- 


instead  of  fifteen  and  one-half  to  one  as  in  i  ard,  with  gold    coins  circulating,    if    at  all, 


France.  More  silver  being  thus  required  to 
make  a  legal  payment  in  America  than  else- 
where, gold  was  naturally  preferred  for  this 
purpose,  and  the  silver  was  sent  abroad.  To 


at  varying  rates,  as  commercial  money.  The 
whole  of  Germany,  north  and  south,  togeth- 
er with  Austria,  the  Scandinavian  kingdoms, 
and  Russia,  belonged  to  this  group.  Owing 


remedy  this  state  of  things  the  government  j  to  the  changes  already  mentioned,  only  Aus- 


of  Washington,  in  1853,  reduced  the  half- 
dollar  and  smaller  silver  pieces  to  the  con- 
dition of  token  coins,  and  though  the  single 
silver  dollar  pieces  remained  of  standard 


tria  and  Russia  now  clearly  represent  the  sil- 
ver standard  in  Europe,  and  even  Austria  has 
begun,  since  1870,  to  coin  gold  pieces  of 
eight  and  four  florins,  the  same  in  weight  and 


weight,  they  were  coined  in  very  small  quan-  !  fineness  as  the  French  gold  twenty-  and  ten- 


tities  and  were  practically  suppressed.  The 
predominance  of  an  inconvertible  paper  cur- 
rency suspended  the  question  of  metallic 
money  for  a  time.  The  Coinage  Act  of  the 
United  States  Congress  came  into  operation 
on  ist  April,  1873,  and  constituted  the  gold 


franc  pieces.  By  an  imperial  decree,  dated 
Vienna,  I2th  July,  1873,  it  is  ordered  that  the 
French,  Belgian,  Italian,  and  Swiss  gold 
pieces  of  twenty,  ten,  and  five  francs  shall 
be  internationally  accepted  in  the  Austro- 
Hungarian  empire  in  the  ratio  of  eight  gold 


one-dollar  piece  the  sole  unit  of  value,  whilst  j  florins  to  twenty  francs  of  gold  coin  of  the 
it  restricted  the  legal  tender  of  the  new  silver  other  nations.  Nevertheless  the  silver  stand- 
trade  dollar,  and  of  the  half-dollar  and  its  j  ard  practically  prevails  over  a  large  part  of 
subdivisions,  to  an  amount  not  exceeding  five  I  the  world.  The  vast  populations  of  India 
dollars  in  any  one  payment.  Thus  the  dou- 1  and  China,  Cochin  China,  the  East  Indian  Is- 


ble  standard  previously  existing  in  theory  was 
finally  abolished,  and  the  United  States  was 


lands,  portions  of  Africa  and   the  West    In- 
dies,  Central  America  and  Mexico,  have  a 


added  to  the  list  of  nations  adopting  the  single    currency  mainly  consisting  of  silver  coins, 


gold  standard. 


THE   MONETARY    SYSTEMS    OF   THE   WORLD. 


On  reviewing  the  changes  which  have  re- 
cently taken  place  in  the  currencies  of  the 
principal  nations,  we  notice  an  unmistakable 

tendency  to  the  adoption  of  gold  as  the  mea-  |  specie  payments,   they  will  certainly  adopt 
sure  of  value,  and  the  sole  principal  medium    gold,  and  Canada,  whose  currency  can  hardly 


either  rupees  as  in  India,  sycee  bars  as  in 
China,  or  silver  dollars  as  in  many  other 
places. 

The  gold  standard  has  thus  made  great 
progress,  and  it  will  probably  continue  to 
progress.  When  the  United  States  return  to 


42  [90] 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


Declassed  at  all  at  present,  must  do  the  same. 
The  Latin  nations,  having  once  abandoned 
the  double  standard  in  practice,  are  not  likely 
to  return  to  it,  and  Austria  must  follow.    An 
extensive  monetary  change  is  hardly  to  be 
expected  in  Russia,  although  it  is  very  re- 
markable that  in  the  province  of  Finland,  a 
part  of  the  empire  highly  distinguished  for 
intelligence  and  good  education,  Russia  has 
positively  admitted  the  franc  system  and  its 
decimal  subdivisions,  the  Finnish    marc   or 
quarter-rouble  having  the  precise  silver  weight 
and  value  of  the  franc,  lira,  and  peseta.  A  great 
step  toward  a  future  international  coinage  is 
thus  effected.     Like  changes  are  impossible 
imong  the  poor,  ignorant,  conservative  na- 
tions of  India,  China,  and  the  tropics  gener- 
ally.    Hence,  we  arrive,  as  it  seems  to  me, 
at  a  broad,   deep  distinction.      The   highly 
civilized  and  advancing  nations  of  Western 
Europe  and  North  America,  including  also 
the  rising  states  of  Australasia,  and  some  of 
the  better  second-rate  states,  such  as  Egypt, 
Brazil,  and  Japan,  will   all  have  the   gold 
standard.     The  silver  standard,  on  the  other 
hand,   will    probably    long    be    maintained 
throughout  the  Russian   Empire,  and  most 
parts  of  the  vast  continent  of  Asia  ;  also  in 
some  parts  of  Africa,  and  possibly  in  Mex- 
ico.    Excluding,  however,  these  minor  and 
doubtful  cases,  Asia  and  Russia  seem  likely 
to  uphold  silver  against  the  rest  of  the  world 
adopting  gfo/d.     In  such  a  result  there  seems 
to  be  nothing  to  regret. 


CHAPTER  XIII. 

TECHNICAL     MATTERS     RELATING    TO    COIN- 
AGE. 


In  this  chapter  I  propose  to  consider  sev- 
eral minor  points  relating  to  the  construction 
and  regulation  of  metallic  currency.  Al- 
though the  first  principles  of  money  are  sim- 
ple, it  is  surprising  how  many  little  details 
have  to  be  considered  before  we  can  attain 
the-maximum  of  convenience.  We  have  al- 
ready discussed  the  selection  of  metals  to  be 
employed,  the  modes  in  which  they  may  be 
combined  into  a  system,  the  regulations  as  to 
issue,  etc.  In  this  and  the  following  chap- 
ters we  still  have  to  consider  the  character  of 
the  alloy  which  is  best  adapted  for  coining  ; 
the  most  convenient  sizes  for  coins  ;  the 
method  of  counting  large  numbers  of  coins  ; 
the  cost  at  which  the  currency  is  maintained  ; 
the  advantages  and  disadvantages  of  inter- 
national currency  of  money  ;  the  difficulty  of 
selecting  a  single  standard  unit :  the  best  se- 
ries of  multiples  and  submultiples  of  the 
unit.  At  the  most,  I  cannot  in  this  work  at- 
tempt to  give  more  than  a  slight  sketch  of 
the  complicated  questions  of  detail  which 
have  to  be  considered  before  making  any 
change  in  the  currency. 


THE   ALLOY   IN    COINS. 

Although  we  commonly  speak  of  money 
as  consisting  of  gold  or  silver,  the  coins  ac- 
tually used  contain  alloys  either  of  silver  or 
copper,  or  of  gold  and  copper,  or  of  gold, 
silver,  and  copper.  Money  struck  in  nearly 
pure  gold  has  indeed  been  issued  both  in 
early  and  recent  times,  and  among  such  gold 
coins  may  be  mentioned  the  ancient  bezant, 
the  recent  Austrian  ducat,  containing  986 
parts  of  gold  in  looo,  the  six-ducat  piece  of 
Naples,  containing  996  parts,  or  the  Tuscan, 
sequin,  which  is  said  to  be  almost  pure  gold, 
namely  999  parts  in  1000.  Pure  gold  and 
silver  are,  however,  soft  metals,  so  that 
even  if  they  were  found  naturally  in  ihe  pure 
state,  it  would  be  desirable  to  add  copper, 
which  communicates  hardness  and  reduces 
very  much  the  abrasion  of  the  coins.  The 
proportion  of  copper  to  be  adopted  has  been 
a  matter  of  frequent  discussion,  and  is  de- 
termined partly  on  historical,  partly  on  sci- 
entific grounds. 

The  exact  alloy  employed  in  England  ap- 
pears to  have  been  decided  by  the  system  of 
weights  used.  Silver  was  weighed  by  the 
troy  pound  of  twelve  ounces,  of  which  eleven 
ounces  two  pennyweights  were  to  be  pure 
silver,  and  eighteen  pennyweights  copper. 
This  proportion,  which  even  in  1357,  was 
called  the  "  old  right  standard  of  England," 
has,  in  spite  of  temporary  depreciations, 
been  maintained  to  the  present  day,  and  cor- 
responds to  the  proportion  of  925  parts  in 
1000.  Gold  having  been  weighed  by  the 
ancient  and  curious  system  of  carat  weights, 
said  to  be  derived  from  the  seeds  of  an 
Abyssinian  plant,  the  unit  weight  of  gold 
was  twenty-four  carats,  of  which  twenty-two- 
were  to  be  of  pure  gold  and  two  of  alloy. 
This  ratio,  which  has  existed  for  many  cen- 
turies, is  decimally  expressed  by  916*66  parts 
in  1000. 

The  degrees  of  fineness  employed  in  one 
country  or  another  at  different  times  are  in- 
finitely various.  Silver  has  been  coined  of 
only  200  or  even  150  parts  in  1000,  and  gold 
of  750  or  700  parts;  and  coins  exist  of  al- 
most every  fineness  from  these  limits  up  to 
nearly  pure  metal.  The  only  standards  of 
fineness  which  it  is  needful  to  discuss  in  the 
present  day  are  those  of  900  and  835  which 
are  proposed  for  general  adoption  in  inter- 
national money.  A  few  years  ago,  indeed, 
the  Berlin  government  contemplated  the 
adoption  of  a  standard  German  crown,  con- 
sisting of  ten  grams  of  pure  gold  and  one 
gram  of  alloy,  which  would  give  a  fineness 
of  ten-elevenths  or  909*09.  This  scheme 
had  no  apparent  advantages,  and  was  fortu- 
nately abandoned  in  favor  of  the  present  Ger- 
man coinage,  which  is,  both  as  regards  gold 
and  silver,  of  the  fineness  of  900  parts  in 
1000.  This  simple  decimal  proportion  was 
adopted  by  the  French  in  the  time  of  the 
Revolution  ;  it  has  been  extended  over  the 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


countries  belonging  to  the  Monetary'  Conven- 
tion of  1865,  and  over  Spain,  Greece,  and 
other  countries  which  have  more  or  less  imi- 
tated the  French  system.  It  was  long  ago 
adopted  by  the  United  States,  and  has  been 
recently  introduced  into  the  gold  currency  of 
the  Scandinavian  kingdoms.  The  German 
government,  having  now  decided  to  accept 
it,  the  simple  decimal  fineness  is  established 
in  all  the  more  advanced  countries,  excepting 
England  and  some  oi  her  colonies,  and  a  few 
nations,  such  as  Russia,  Portugal,  and  Tur- 
key, which  have  imitated  the  English  cur- 
rency and  coined  gold  at  916 '66. 

In  a  chemical  and  mechanical  point  of 
view  the  exact  degree  of  fineness  is  not  a 
matter  of  importance.  The  difference  be- 
tween eleven-twelfths  and  nine-tenths  is  only 
one-sixtieth,  and  though  the  often-quoted 
experiments  of  Hatchett  were  said  to  show 
that  our  standard  was  slightly  better  than 
that  of  the  French,  the  difference  is  so  slight 
and  questionable  as  to  afford  no  ground  for 
preference.  The  late  Master  of  the  Mint, 
Professor  Graham,  was  quite  willing  to  ac- 
cept the  standard  of  900,  both  for  gold  and 
silver,  and  there  are  really  no  reasons,  except 
prejudice  and  traditional  usage,  why  we 
should  not  do  so  as  soon  as  we  make  any 
change  at  all.  Uniformity  in  the  practice  of 
nations  is  desirable  in  this  and  many  othei 
points,  and  the  French  economists  lay  great 
stress  upon  this  question  of  fineness.  It  ap- 
pears to  me,  however,  that  the  exact  degree 
of  fineness  is  altogether  a  matter  of  secondary 
importance.  If  we  were  now  to  make  oui" 
sovereign  nine-tenths  fine,  we  should  have  to 
raise  its  weight  from  123*274  grains  to  125'- 
557  grains,  and  the  mixture  of  old  and  new 
coins  would  entirely  frustrate  the  method  of 
counting  gold  money  by  the  scales  adopted 
in  all  banks.  We  must  certainly,  therefore, 
postpone  a  change  of  fineness  in  gold  until 
we  make  a  more  considerable  monetary  re- 
form. I  see  no  reason,  on  the  other  hand, 
why  the  mint  should  not  at  once  be  author- 
ized to  coin  silver  of  the  decimal  fineness  of 
nine-tenths.  This  would  merely  involve  an 
imperceptible  increase  in  the  thickness  of  the 
coins,  which  would,  in  the  case  of  the  small- 
er ones,  be  advantageous. 

The  fineness  of  835  parts  in  1000  was 
adopted  by  France,  as  already  stated  (Chapter 
VIII.),  in  order  to  reduce  the  two-franc  and 
smaller  pieces  to  the  rank  of  tokens,  witnout 
making  any  change  in  their  weight  and  ap- 
pearance. There  is  no  special  objection  to 
this  alloy,  which  is  perfectly  coinable  and  of 
good  color  ;  but  it  is  not  likely  that  it  will  be 
adopted  by  the  English  government  instead 
of  the  present  fineness  of  925  parts  in  1000 
of  our  silver  coinage,  and  does  not  need  fur- 
ther discussion.  It  may  be  added  that,  in 
former  years,  the  alloy  contained  in  gold 
coins  consisted  in  part  of  silver,  which  is  al- 
ways present  in  greater  or  less  quantity  in 
native  gold  wherever  it  is  found.  The  yel- 


low appearance  of  guineas,  and  also  of  many 
Australian  sovereigns,  was  due  to  this  silver 
alloy ;  but  all  such  silvery  gold  coins  are 
rapidly  withdrawn  now  by  gold  refiners,  wha 
can  profitably  separate  tne  silver.  The  very 
remarkable  invention  of  Mr.  F.  B.  Miller,  oi 
the  new  Melbourne  mint,  enables  this  separa- 
tion to  be  effected  with  great  ease,  and  at 
small  cost,  almost  on  the  gold  fields.  It  is 
only  requisite  to  melt  the  silvery  gold,  and 
pass  a  current  of  chlorine  gas  into  it,  to  ob- 
tain the  silver  in  the  state  of  chloride,  which 
is  readily  separated  from  the  gold  and  re- 
duced to  the  metallic  state.  It  is  a  further 
advantage  of  this  simple  process  that  all  gold 
so  treated  is  freed  from  accidental  impurities, 
and  rendered  perfectly  malleable  and  fit  for 
coining.  One  of  the  great  difficulties  of  mint 
masters,  the  brittleness  of  gold,  has  thus 
been  entirely  overcome.  A  full  description 
of  the  process,  as  employed  at  the  English, 
Australian,  American,  Norwegian,  and  other 
mints  will  be  found  in  the  First  Annual  Re- 
port of  the  Deputy  Master  of  the  English 
Mint  (p.  93),  and  in  the  Second  Report  (p. 
33),  or  in  the  specification  as  printed  by  the 
Patent  Office. 

THE   SIZE   OF   COINS. 

There  appear  to  be  pretty  well  defined 
limits  of  size  within  which  we  should  confine 
ourselves  in  the  striking  of  money.  Coins 
must  not  be  so  small  that  they  can  be  easily 
lost,  or  can  with  difficulty  be  picked  up. 
The  rule  seems  to  be  that  the  coin  should 
cover  the  whole  area  of  contact  between  the 
points  of  the  thumb  and  first  finger ;  and 
though,  of  course,  this  area  will  differ  with 
men,  women,  and  children,  we  should  err 
rather  in  excess  than  defect.  On  this  ground 
I  should  condemn  the  English  threepenny 
silver  piece  as  too  small,  and,  on  the  same 
ground,  the  Swedish  ten-ore  piece,  the  Amer- 
ican one  dollar  gold  piece,  the.  former  Papal 
one-scudo  piece,  must  be  pronounced  incon- 
veniently small.  The 'French  five-franc  gold 
piece  of  the  latter  type,  the  English  fourpen- 
ny  piece,  the  Canadian  five-cent  piece,  or  the 
new  silver  piece  of  twenty  pfennigs,  now  be- 
ing introduced  into  the  German  empire,  must 
be  considered  the  smallest  coins  to  be  toler- 
ated. The  thickness  of  the  coins,  however, 
must  be  taken  into  account  as  well  as  the 
diameter.  The  moneys  issued  from  the 
1  United  States  min-t  are  thicker  than  usual, 
and  though  this  tends  to  give  some  of  the 
i  coins  a  clumsy  appearance,  yet  they  seem 
ito  me  all  the  more  convenient  to  use. 
I  The^  French  have  gone  to  the  opposite  ex- 
j  treme,  the  five-franc  gold  piece  being  very 
thin,  and  having  a  diameter  of  nearly  seven- 
teen millimeters,  while  the  American  dollar, 
which  is  more  valuable,  has  a  diameter  of 
little  more  than  thirteen  millimeters.  The 
maximum  size  of  coins  has  probably  been  de- 
-termined  chiefly  with  regard  to  the  practical 
difficulty  of  coining.  The  largest  coin  which 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


has  been  very  widely  circulated  is  perhaps 
the  Maria  Theresa  dollar,  measuring  I  '6  inch- 
es, or  forty-one  millimeters,  in  diameter  ; 
the  other  most  common  species  of  dollar  are 
somewhat  smaller,  such  as  the  Spanish  dol- 
lar of  1858,  measuring  thirty-seven  milli- 
meters ;  the  American  dollar,  1846,  the  Span- 
ish dollar,  1870,  the  Mexican  dollar,  1872, 
measuring  from  thirty-seven  to  thirty-eight 
meters.  The  average  diameter  of  the  dollars 
which  I  have  examined  is  thirty-eight  and  one- 
half  millimeters,  or  almost  exactly  an  inch 
and  a-half.  In  their  larger  gold  coins  the 
Americans  maintain  unusual  thickness.  Thus 
the  double  eagle,  though  in  value  equal  to 
more  than  four  pounds,  has  a  diameter  of 
only  thirty-four  millimeters,  or  one  and  one- 
third  inches.  The  beautiful  four-ducat  piece  of 
Austria  has  a  larger  diameter  than  the  double 
eagle,  though  it  contains  less  than  half  the 
quantity  of  fine  gold. 

THE   WEAR    OF   COIN. 

Some  attention  must  be  given  to  the  abra- 
sion which  coins  suffer  in  use.  In  the  case 
of  gold  coins  the  loss  of  metal  thus  occa- 
sioned is  of  importance,  and  leads,  as  we 
have  seen  (Chapter  X.),  to  a  gradual  depre- 
ciation of  the  currency.  As  coins  pass  fre- 
quently from  hand  to  hand,  the  amount  of 
metal  abraded  will  be  nearly  the  same  as  re- 
gards each  coin  of  the  same  type,  and  each 
year  of  circulation.  The  loss  will  be  propor- 
tional to  length  of  wear.  Now  the  English 
law  allows  a  sovereign  to  be  legal  tender  so 
long  as  it  weighs  122*5  grains,  or  more  ;  and 
the  difference  between  this  and  the  full  stand- 
ard weight,  or  0774  grain,  represents  the 
margin  allowed  for  abrasion.  Now,  from 
-experiments  described  in  a  paper  read  to  the 
London  Statistical  Society  in  November, 
1868,  ("Journal  of  the  Statistical  Society," 
Dec.  1868,  vol.  xxxi.  p.  426),  I  estimated  the 
average  wear  of  a  sovereign  for  each  year  of 
•circulation  at  0x543  grain  (o '00276  gram). 
It  would  follow  that  a  sovereign  cannot  in 
.general  circulate  more  than  about  eighteen 
years  without  becoming  illegitimately  light. 
This  length  of  time,  then,  would  constitute 
what  may  be  called  the  legal  life  of  a  sover- 
eign. It  has  since  been  shown  by  Dr.  Farr, 
that  certain  considerations  overlooked  in  my 
calculations  would  reduce  this  estimate  of  the 
legal  life  to  fifteen  years.  Mr.  Seyd,  on  the 
other  hand,  thinks  that  tvventy  years  might  be 
adopted  as  the  legal  age  of  the  sovereign. 

When  we  compare  the  currencies  of  differ- 
ent countries,  it  becomes  evident  that  the 
rate  of  abrasion  will  depend  partly  upon  ^:he 
rapidity  and  constancy  of  circulation,  partly 
upon  the  size  and  character  of  the  coins. 
According  to  the  inquiries  of  M.  Feer-Her- 
Zog  in  Switzerland,  the  average  loss  of  the 
twenty-franc  piece  amounts  to  two  hundred 
•millionths  of  the  full  weight  in  each  year, 
while  with  the  ten  and  five-franc  gold  pieces, 
>the  corresponding  amounts  are  430  and  620 


'  millionths.  My  own  weighings  of  English 
I  gold  show  that  the  sovereign  loses  about  350 
!  millionths  in  each  year  of  wear,  and  the  half- 
|  sovereign  no  less  than  1120  miiuonths,  or 
more  than  one-tenth  per  cent,  per  annum, 
As  the  English  coins  are  heavier  than  the 
napoleon  and  half-napoleon,  they  should  suf- 
fer less  loss  in  proportion.  M.  Feer-Herzog 
attributes  the  excessive  loss  manifested  by 
English  money  to  the  softer  character  of  the 
English  alloy  of  eleven-twelfths.  This  cause 
may  contribute  something  to  the  effect  ob- 
served, but  it  is  probable  that  the  greater 
rapidity  of  the  circulation  in  England  is  the 
main  ground  on  which  so  great  a  difference 
can  bi  explained. 

The  rate  of  wear  of  a  coin  depends  greatly, 
it  will  be  seen,  upon  its  size.  A  large  coin, 
like  an  English  crown,  a  French  silver  ecu. 
or  en  American  double  eagle,  suffers  com- 
paratively little  wear,  because  the  surface  in- 
creases much  less  rapidly  in  proportion  than 
the  contents  of  the  coin.  The  slight  degree 
of  abrasion  of  the  various  silver  do"ars  may 
be  one  cause  of  their  popularity  in  the  East. 
Smaller  silver  money  loses  much  more.  Thus, 
according  to  experiments  made  at  the  mint 
in  1833,  the  loss  per  cent,  per  ajinum  on  half- 
crowns  is  about  2s.  6t/.,  on  shillings  4.9.,  and 
on  sixpences  "js.  bd.,  or  decimally  '125,  '200, 
and  '375  per  cent,  respectively.  This  loss 
becomes  considerable  in  the  course  of  years, 
as  may  readily  be  seen  in  the  case  of  worn 
sixpences.  The  average  loss  of  weight  of 
the  old  silver  coins  melted  at  the  mint,  seems 
to  be  about  i6^£  per  cent.,  but  this  loss  is 
more  than  covered  by  the  profit  upon  the 
issue  of  new  silver  coin.  Experiments  were 
made  at  the  mint  in  1798  upon  the  weight  of 
English  silver  coins  then  in  circulation.  It 
was  found  that  the  deficiency  amounted  in 
crowns  to  3*31  per  cent.,  and  in  half-crowns, 
shillings,  and  sixpences,  respectively,  to  9 '90, 
24*60,  and  38*28,  per  cent.  In  the  recent 
withdrawal  of  the  old  silver  money  of  South 
Germany,  it  was  found  to  have  lost  on  the 
average  about  one-fifth  part  of  its  weight. 

To  reduce  the  loss  arising  from  the  wear  of 
gold  coin,  it  might  seem  to  be  desirable  to 
issue  large  gold  pieces.  The  .Americans 
used  to  have  a  great  circulation  of  eagles 
and  double  eagles,  the  latter  especially  being- 
very  handsome  medal-like  pieces.  In  for- 
mer days  many  large  gold  coins,  such  as  the 
carlino,  dobraon,  doubloon,  quadruple  pis- 
tole, and  the  double  ryder  were  current.  A 
serious  objection,  however,  to  such  coins  as 
a  double  eagle,  one-hundred  franc-piece,  or 
five-pound  piece,  is  that  they  can  readily  be 
alsified.  Small  holes  can  be  drilled  through 
them,  and  then  concealed  by  hammering. 
The  application  of  the  file,  the  sweating-bag, 
or  cylinder,  or  of  chemical  reagents,  would 
probably  be  safer  with  large  than  with  small 
soins.  In  some  cases  a  double  eagle  has 
been  completely  sawn  into  two  flat  discs, 
which  were  afterward  neatly  soldered  to- 


MONEY  AND  TIIK   Ml-X'HAMSM   OF   i:\riI.\NtiK. 


[93]  45 


gether  again  with  a  plate  of  platinum  be- 
tween to  give  the  requisite  weight.  It  might 
have  been  thought  that  the  labor  and  skill 


pidity  for  the  payment  of  checks  over  the 
counter,  or  to  verify  the  number  of  sovereigns 
paid  in  on  deposit.  For  this  purpose  balan» 


required  to  effect  such  falsification  would  I  ces  are  employed,  with  weights  prepared  so 
have  been  better  remunerated  in  some  honest  j  as  to  be  equivalent  to  5,  10,  20,  30,  50,  100, 
employment;  but,  according  to  the  reports  of  i  200,  and  300  sovereigns.  Any  sum  which  is 
the  Director  of  the  United  States  Mint,  there  j  a  multiple  of  five  sovereigns  can  thus  be  rap. 
is  evidence  to  show  that  the  practice  is  prof-  '.idly,  and  almost  infallibly,  weighed  out  in  a 
itable.  It  is  proposed  to  prevent  this  falsifi-  'few  seconds,  provided  that  the  coins  are  not 
cation  by  reducing  the  thickness  of  the  double  I  too  old  and  worn.  An  error  of  a  sovereign  is 
eagle,  and  also  making  it  somewhat  dish  '  sometimes  possible  in  a  large  sum,  on  account 
shaped;  but  it  would  be  better  to  abandon  of  deficiency  of  weight.  7n  the  case  of  half. 


the  issue  of  such  large  gold  money,  as  has 
long  been  done  in  England  and  France.  Ex- 
perience shows  that  sovereigns,  napoleons, 
half-eagles,  and  gold  coins  of  the  same  size 
are  not  fraudulently  treated,  nor  are  silver 
coins  ever  debased  in  the  way  described. 

In  order  to  diminish  the  abrasion  of  coins 
as  far  as  possible,  the  design  and  legend 
should  be  executed  with  the  least  possible  re- 
lief consistent  with  perfect  definition,  and 
the  head  of  the  monarch,  or  other  person- 
age, should  not  protrude.  In  this  and  most 
other  respects  the  sharply  defined  flat  design 
upon  the  English  florin  is  much  superior  to 
the  high  rounded  ornaments  of  the  old  crown, 
half-crown,  and  shilling.  The  French  mints 
seem  to  be  very  successful  in  the  execution 
of  dies,  all  the  coins,  gold,  silver,  and  bronze, 
struck  by  them  having  flat,  yet  admirably  ex- 
ecuted devices.  Perhaps  the  most  beautiful 
recent  coin  which  I  have  seen  is  the  new 
twenty-franc  gold  piece  struck  during  1874 


sovereigns,  this  process  is  seldom  to  be  de- 
pended upon,  owing  to  the  very  considerable 
lightness  of  the  coins.  This  uncertainty  in 
weighing  is  one  of  several  serious  inconveni- 
ences which  arise  from  the  defective  state  of 
our  gold  coinage. 

Half-sovereigns,  nowever,  and  in  fact  all 
coins  which  are  approximately  equal  to  each 
other  on  the  average,  can  be  rapidly  counted 
on  the  balance  by  the  ingenious  method  0f 
duplication.  Any  convenient  number,  for 
instance,  fifty  coins,  being  counted  into  one 
scale,  an  equal  number  may  be  made  to  bal- 
ance them,  without  counting,  in  the  other 
scale.  The  two  equal  lots  being  united,  one 
hundred  more  coins  may  be  made  to  counter- 
balance them,  and  by  a  second  union  we  get 
two  hundred  coins.  We  may  repeat  this  du. 
plication,  if  the  balance  will  bear  the  weight, 
and  afterward,  using  one  lot  of  coins  as  the 
fixed  weight,  may  go  on  counting  out  lot 
after  lot  equal  to  it  in  weight  and  number. 


METHODS   OF   COUNTING   COINS. 


for  Hungary,  the  engraving  of  the  die  being  |  When  neither  balance  nor  counting  board 
excellent.  The  new  Scandinavian  gold  pieces  j  is  available,  coins  may  be  counted  out  into 
of  five  specie  dollars,  or  twenty  kroner,  are  little  piles  of  ten,  fifteen,  or  twenty.  Placing 
also  well  executed.  these  piles  alongside  each  other  on  a  flat 

board,  it  is  easy  to  detect  any  inequality  of 
height  by  the  unassisted  eye,  or  by  a  straight 
To  count  large  quantities  of  coin  by  tale,  !  edge  laid  along  the  top.    A  mistake  in  count- 
piece  after  piece,  is  not  only  a  tedious  opera-  j  ing  will  thus  be  generally  made  manifest, 
lion,  but  very  uncertain  as  regards  accuracy.  ' 
Several  methods  have  been  devised  to  facili- 
tate the  operation.     In  mints,   the  Bank  of 


England,   and    other    establishments,   where 


COST    OF   THE    METALLIC    CURRENCY 

Calculations  of  some  interest  may  be  < 
as  to  the  cost  which  falls  upon  the  public  in 

vasT  quantities  of  coin  are  treated,  counting\  one  way  or  another,  owing  to  the  use  of  me- 
boardsvxt  used.  Similar  boards  have  indeed,  tallic  money.  Speaking  first  of  the  subordi- 
been  used  from  time  immemorial  in  some  |  nate  coins  of  silver  and  bronze,  the  govern- 
parts  of  India  by  money-changers  and  trades-  ment  make  a  profit  by  their  manufacture, 


men.  These  consist  of  simple  flat  trays,  with 
several  hundred  depressions  regularly  arrang- 
ed, aud  of  such  a  size  that  one  coin  will  ex- 
actly fit  into  each  depression.  Handfuls  of 
uniform  coins  are  thrown  on  to  the  board, 
and  shaken  over  it,  until  most  of  the  holes 
are  filled;  the  remaining  holes  are  then  filled 
•p  one  after  another  by  hand-  The  number 
contained  upon  the  board  is  then  known  with 


owing  to  the  reduced  weight  at  which  they 
are  issued  as  tokens.  Standard  silver  can 
usually  be  bought  by  the  mint  for  five  shi- 
lings  per  standard  ounce,  It  is  issued  to  the 
public  ~t  the  rate  of  five  shillings,  six  pence 
per  ounce,  so  that  the  government  receives  a 
seignorage  of  at  least  nine  per  cent,  on  the 
nominal  value  of  the  coin  issued.  The  aver- 
age coinage  of  silver  at  the  English  mint  dur- 


infallible  accuracy,  and  at  the  same  time  it  is  j  ing  the  last  ten  years  has  been  ^546, 5 So,  upon 
very  easy  to    examine  the  coins,   and   detect  j  which  the  seignorage  would  be  about  jC^q.- 

On    the   other    hand,   the 


any  counterfeit,  defective,  or  foreign  pieces. 
By  the  use  of  such  boards,  bags  of  equal 
numbers  of  any  coinage  are  readily  made  up 
with  great  certainty. 

In  English  banks    it  is  requisite  to  count 
out  considerable  sums  in  gold  coin  with  ra- 


200 


per 


mint  has  to  buy  back  worn  silver  coinage  at 
its  nominal  value,  and  in  recoining  such 
money  there  is  a  loss,  which,  on  the  average 
of  the  last  ten  years  (1864-73)  has  been 
^"16,700,  leaving  a'  net  annual  profit  of 


46  [94] 


MONEY   AND  THE  MECHANISM  OF  EXCHANGE, 


500,  no  account  being  taken  of  the  cost  of 
the  mint  establishment.  At  present  the 
price  of  silver  is  not  above  four  shillings 
ten  pence  per  ounce,  so  that  the  seignorage 
is  about  twelve  per  cent.,  and  the  profit  on 
coining  silver  proportionately  greater. 

We  may  look  at  this  matter  in  another 
Way,  by  regarding  the  seignorage  as  so  much 
money  funded  to  bear  interest,  to  meet  the 
cost  of  withdrawing  the  coin,  when  worn 
out,  say  thirty  years  subsequently.  Now  a 
pound  bearing  three  and  one-fourth  per  cent, 
compound  interest,  becomes  in  thirty  years 
2r6i  pounds,  so  that  the  nine  per  cent,  of 
seignorage  will  have  multiplied  to  23*5  per 
cent.  But  the  actual  deficiency  of  weight  of 
the  silver  coin  withdrawn  is,  on  the  average, 
only  sixteen  and  one-half  per  cent.,  so  that, 
without  taking  into  account  the  considerable 
number  of  coins  which  must  be  lost,  ex- 
ported, melted,  hoarded,  sunk  in  the  sea,  or 
otherwise  finally  withdrawn  from  circula- 
tion, there  is  a  profit  on  the  issue  of  the  silver 
coin  unaer  the  present  regulations. 

In  the  issue  of  bronze  money  there  has 
been,  as  before  stated,  a  profit  of  ,£270,000, 
against  which  must  be  set  off  the  possible, 
but  uncertain  cost  of  recoining  a  light  token 
currency  at  some  future  time. 

The  cost  of  the  currency  is  made  up  of 
four  principal  items :  the  loss  of  interest 
upon  the  capital  invested  ia  the  money,  the 
loss  by  the  abrasion  of  gold  coins,  the  ex- 
penses of  the  mint,  and  lastly  the  casual  loss 
of  coins.  The  last  item  is  of  wholly  un- 
known amount ;  the  other  items  may  be  esti- 
mated as  follows.  We  may,  roughly  speak- 
ing, assume  the  gold  curutocy  of  the  king- 


dom to  consist  of  84,000,000  of  sovereigns 
and  32,000,000  of  half-sovereigns,  the  total 
value  being  100,000,000  sterling.  The  sov- 
ereigns lose  annually  on  the  average  o  043 
grain  each,  giving  an  annual  loss  of  about 
£30,000  ;  the  half-sovereigns  lose  0*069 
grain  each,  producing  a  loss  of  £18,000. 
The  loss  of  interest,  however,  is  a  far  more 
serious  matter.  The  whole  value  of  the 
metals  employed  in  the  currency  is,  roughly 
speaking,  as  follows  : — 

Gold  coin  in  circulation   .     .     .   100,000,000 
Bullion  in  the  Bank  of  England     15,000.000 
Silver  coin  .     .     .     .  ...     .     .       15,000,000 

Bronze  coin 1,125,000 


Total 


131,125,000 


The  interest  on  this  sum  at  three  and  a-half 
per  cent,  is  no  less  than  £4,262,000. 

The  cost  of  the  mint  establishment  is 
about  £42,000  annually,*-,  The  following 
statement,  then,  shows  the  aggregate  cost 
of  the  metalllic  currency  so  far  as  it  can  be 
estimated: 

Loss  of  interest £4,262,000 

Wear  of  coin 48,000 

Mint  establishment    ....  42,000 


£4.352,000 

From  this  amount  ought  to  be  subtracted  the 
profit  which  the  mint  makes  out  of  the 
seignorage  upon  silver  and  bronze  coins ; 
but  we  may  set  off  this  profit  against  the 
wholly  unknown  amount  which  the  public 
loses  by  the  accidental  dropping  of  coins. 


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No.  I. 
LIGHT    SCIKNTK     FOR    LEISURE     HOURS. 

A  series  of  Familiar  Essays  on  Scientific  Subjects. 
l?y  RICHARD  A.  PROCTOR,  F.R.A.S. 

Y/if<?  (in  part).— The  Earth  a  Magnet— The  Se- 
;'  the  North  Pole— Our  Chief  Timepiece  Losing 
Time— Tornadoes— Influence  of  Marriage  on  the  Death 
Rate— Squaring  the  Circle— The  Usefulness  of  Earth- 
quakes—The Forcing  Power  of  Rain,  &c. 

No.  2. 
THE   FORMS  OF  WATER  IN  CLOUDS  AND 

RIVERS,   ICE    AND    GLACIERS.— By  JOHN 

TYXDALL,  LL.D.,  F.R.S.— Illustrated. 

Contents  (in  part).—  Oceanic  Distillation— Architect- 
ure of  Snow— The  Motion  of  Glaciers— Icicles— Erratic 
Blocks  — Tropical  Rains  — Atomic  Poles  — Birth  of  a 
Crevasse  —  Moraine  Ridges,  &c. 

No.  3. 

YSICS  AND  POLITICS:  An  Application  of  the 
Principles  of  Natural  Selection  and  Heredity  to  Po- 
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"The  English  Constitution,"  &c. 
Contents.— The  Preliminary  Age— The  Use  of  Con- 
flict—Nation Making— The  Age  of  Discussion— Verifi- 
able Progress  Politically  Considered. 

No.  4. 

EVIDENCE   AS  TO   MAN'S    PLACE    IN   NA- 
TURE—  By  THOMAS  HUXLEY,  F.R.S.— Illust'd. 

Contents.—  The  Natural  History  of  the  Manlike 
Apes— The  Relations  of  Man  to  the  Lower  Animals- 
Fossil  Remains  of  Man. 

No.  5. 
EDUCATION:       INTELLECTUAL,      MORAL, 

AND  PHYSICAL — By  HERBERT  SPENCER. 

Contents.—  What  Knowledge  is  of  Most  Worth?— 
Intellectual  Education  — Moral  Education  — Physical 
Education. 

No.  6. 
TOWN  GEOLOGY.- By  Rev.  CHARLES  KlNGSLEY, 

F.R.i-     Canon  of  Chester. 

Contet  ».— The  Soil  of  the  Field— The  Pebbles  in  the 
Street— 1  3  Stones  in  the  Wall— The  Coal  in  the  Fire— 
The  Lime  m  the  Mortar— The  Slates  on  the  Roof. 

NO.  r. 

THE      CONSERVATION      OF     ENERGY By 

BALFOUR  STEWART,  F.R.S.— Illustrated. 

Contents. — What  is  Energy?  —  Mechanical  Energy 
and  its  Change  into  Heat— The  Forces  and  Energies  of 
Nature— Transmutations  of  Energy— The  Dissipation 
of  Energy— The  Position  of  Life— Correlation  of  Nerv- 
ous and  Mental  Forces: 

No.  8. 

THE     STUDY    OF    LANGUAGES    BROUGHT 
BACK    TO    ITS    TRUE    PRINCIPLES By 

(\  MARCEL. 

Contents.—  Subdivision  and  Order  of  Study— The  Art 
of  Reading— The  Art  of  Hearing— The  Art  of  Speaking 
The  Art  of  Writing— Mental  Culture— Routine. 


No.  9. 

THE  DATA  OF  ETHIC  S.-By  HERBERT  SPENCER. 
Contents. —  Conduct  in  General — Evolution  of  Con- 
duct— Good  and  Bad  Conduct— Ways  of  Judging  Con- 
duet— The  Physical  View— The  Biological  View— The 
Psychological  View— The  Sociological  View— Criticisms 
and  Explanations— Relativity  of  Pains  and  Pleasures- 
Egoism  vs.  Altruism — Altruism  vs.  Egoism — Trial  and 
Compromise— Conciliation— Absolute  Ethics  and  Rel- 
ative Ethics— The  Scope  of  Ethics. 

No.  10. 
THE  THEORY  OF  SOUND  IN  ITS  RELATION 

TO  MUSIC — By  Prof.  PIETRO  BLASERNA,  of  the 

Royal  University  of  Rome.—  Illustrated. 

Contents  (in  part). —  Periodic  Movements  —  Vibra- 
tion— Transmission  of  Sound — Characteristics  of  Sound, 
and  difference  between  musical  sound  and  noise— Dis- 
cords— Quality  or  timbre  of  musical  sounds — Italian 
and  German  music,  &c. 

No*.  11  and   12.— Double  number,  8O  cents. 
THE   NATURALIST   ON  THE    RIVER  AMA- 
ZONS—  A  Record  of  Adventures,  Habits  of  An- 
imals, Sketches  of  Brazilian  and  Indian  Life,  and 
Aspects  of  Nature  under  the  Equator,  during  eleven 
years  of  travel.— By  HENRY  WALTER  BATES,  F.R.S. 
*%  One  of  the  most  charming  books  of  travel  in  our 
language. 
No.  18. 

MIND  AND  BODY:  THE  THEORIES  OF 
THEIR  RELATION — By  ALEXANDER  BAIN, 
LL.D.,  Professor  of  Logic  in  the  University  of  Ab- 
erdeen. 

Contents. — The  Question  Stated  —  Connection  of 
Mind  and  Body— The  Connection  Viewed  as  Corre- 
spondence or  Concomitant  Variation — General  Laws  of 
Alliance  of  Mind  and  Body— The  Feelings  and  Will— 
The  Intellect— How  are  Mind  and  Body  united  ?— His- 
tory of  the  Theories  of  the  Soul. 

No.  14. 

THE    WONDERS    OF    THE    HEAVENS.- By 

CAMILLE  FLAMMARION.—  Illustrated. 

Contents  (in  part).— The  Heavens— The  Milky  Way 

—Double,  Multiple,  and  Colored  Suns— The  Planets— 

The  Earth— Plurality  of    Inhabited  Worlds— Infinite 

Space— Constellations— The  Sun— Comets— The  Moon. 

No.  15. 

LONGEVITY:  THE  MEANS  OF  PROLONG- 
ING LIFE  AFTER  THE  MIDDLE  AGE. 
By  JOHN  GARDNER.  M.D. 

Contents  (in  part).— Is  the  Duration  of  Life  in  any 
way  within  our  power? — Physiology  of  Advanced  Age 
— Heredity — Established  Facts  regarding  Longevity,  &c. 

No.  16. 

O5*  THE  ORIGIN  OF  SPECIES;  or,  The 
Causes  of  the  Phenomena  of  Organic  Nature. 
A  Course  of  Six  Lectures.— By  THOMAS  HENRY 
HUXLEY,  F.R.S. 

Contents. —  Present  Condition  of  Organic  Nature — 
Past  Condition  of  Organic  Nature— Origination  of  Or- 
ganic Beings — Perpetuation  of  Living  Beings — Con- 
ditions of  Existence— A  Critical  Examination  of  Mr. 
Darwin's  Great  Work. 


THE    HUMBOLDT   LIBRARY    OF   SCIENCE. 


No.  17. 
PROGRESS:    ITS   LAW  AND   CAUSE.—  With 

Other  Disquisitions.— By  HERBERT  SPENCER. 

Contents.—  Progress— The  Physiology  of  Laughter- 
Origin  and  Functions  of  Music  —  The  Development 
Hypothesis— The  Social  Organism— The  Use  of  Anthro- 
pomorphism. 

No.  18. 
LESSONS    IN    ELECTRICITY.— By  JOHN  TYN- 

DALL,  P.R.S.—  Illustrated. 

Contents  (in  part).— The  Art  of  Experiment— Elec- 
tric Induction— Lichtenburg's  Figures— Electrics  and 
Non-Electrics— The  Leyden  Jar— Physiological  Effect 
of  the  Electric  Discharge— Atmospheric  Electricity,  &c. 

No.  19. 

FA3IILIAR    ESSAYS   ON   SCIENTIFIC    SUB- 
JECTS—  By  RICHARD  A.  PROCTOR,  F.R.A.S. 

Contents— Oxygen  in  the  Sun— Sun-spot,  Storm,  and 
Famine— New  Ways  of  Measuring  the  Sun's  Distance- 
Drifting  Light-waves— The  new  Star  which  faded  into 
Star-  mist— Star-grouping. 

No.  80. 
THE     ROMANCE    OF    ASTRONOMY.— By  R. 

KALLEY  MILLER,  M.A. 

Contents.—  The  Planets  —  Astrology  —  The  Moon  — 
The  Sun— The  Comets— Laplace's  Nebular  Hypothesis 
—The  Stars— The  Nebulae— Appendix. 

No.  81. 
ON  THE  PHYSICAL,  BASIS  OF  LIFE.— With 

Other  Essays.— By  THOMAS  H.  HUXLEY,  F.R.S. 

Contents.—  The  Physical  Basis  of  Life— Scientific 
Aspects  of  Positivism— A  Piece  of  Chalk— Geological 
Contemporaneity — A  Liberal  Education,  and  where  to 
find  it. 

No.  83. 
SEEING    AND    THINKING —  By  Prof.  WILLIAM 

KINGDON  CLIFFORD,  F.R.S.—  Illustrated. 

Contents.— The  Eye  and  the  Brain— The  Eye  and 
Seeing— The  Brain  and  Thinking— On  Boundaries  in 
General. 

No.  88. 
SCIENTIFIC    SOPHISMS.— A  Review  of  Current 

Theories  concerning  Atoms,  Apes,  and  Men.— By 

SAMUEL  WAINWRIGHT,  D.D. 

Contents.— The  Right  of  Search— Evolution— A  Pu- 
erile Hypothesis— Scientific  Levity— A  House  of  Cards 
—Sophisms— Protoplasm— The  Three  Beginnin«a-rThe 
Three  Barriers— Atoms— Apes— Men— Auimn  Mundi. 

No.  84. 
POPULAR       SCIENTIFIC       LECTURES.— By 

Prof.  H.  HELMHOLTZ.— Illustrated. 

Contents.— The  Relation  of  Optics  to  Painting. 
1.  Form.  2.  Shade.  3.  Color.  4.  Harmony  of  Color. 
The  Origin  of  the  Planetary  System— Thought  in  Med- 
icine—Academic Freedom  in  German  Universities. 

No.  85. 
THE    ORIGIN  OF  NATIONS Comprising    two 

divisions,  viz.,  "Early  Civilizations,"  and  "Ethnic 

Affinities."— By  GEORGE  RAWLINSON,  M.A.,  Camden 

Professor  of  Ancient  History  in  Oxford  University, 

England. 

Contents.—  Early  Civilizations  —  Introduction  —  An- 
tiquity of  Civilization  in  England — Antiquity  of  Civili- 
zation at  Babylon — Phoenician  Civilization — Civiliza- 
tions of  Phrygia,  Lydia,  the  Troas,  Assyria,  Media, 
India,  &c.—  Civilization  of  the  British  Celts— Civiliza- 
tion of  the  Etruscans— Results  of  the  Inquiry. 

Ethnic  Affinities. —  Chief  Japhetic  Races — Subdivis- 
ions of  the  Japhetic  Races— Chief  Hametic  Races— Sub- 
divisions of  Cush — Subdivisions  of  Mizraim  and  Canaan 
—  The  Semitic  Races  —  Subdivisions  of  the  Semitic 
Races. 

No.  86. 
THE   EVOLUTIONIST  AT  LARGE.— By  GRANT 

ALLEN. 

Contents  (in  part).—  Microscopic  Brains— Slugs  and 
Snails  — Butterfly  Psychology  — In  Summer  Fields  — 
Speckled  Tront— Origin  of  Walnuts— Dogs  and  Masters. 


No.  87. 

THE  HISTORY  OF  LANDHOLDING  IN  ENG- 
LAND.—By  JOSEPH  FISHER,  F.R.H.S. 
Contents  (in  part).— The  Aborigines— The  Romans— 

The  Scandinavians — The  Normans — The  Plantagenets 

—The  Tudors— The  Stuarts— The  House  of  Brunswick 

— Land  and  Labor,  &c. 

No.  88. 

FASHION     IN     DEFORMITY,    as    Illustrated 
in  the  Customs  of  Barharous  and  Civilized 

Races.— By  WILLIAM   HENRY  FLOWER,  F.R.S.— 

Illustrated.— To  which    is   added    Manners    and 

Fashion.— By  HERBERT  SPENCER. 

Contents  (in  part}. —  Fashions  in  Coiffure — Tattooing 
— Deforming  the  Teeth — Deforming  the  Feet — Erad- 
icating the  Eyebrows — Ornaments  for  the  Nose.  Ears, 
Lips— Compressing  the  Skull— Effects  of  Tight  Lacing. 

No.  89. 
FACTS    AND    FICTIONS   OF    ZOOLOGY By 

ANDREW  WILSON,  Ph.D.— Illustrated. 

Contents.—  Zoological  Myths— The  Sea  Serpents  of 
Science  —  Some  Aniinal  Architects  —  Parasites  and 
Their  Development — What  I  saw  in  an  Ant's  Nest. 

NOB.  SO  and  81.—  15  cents  each  number. 
ON    THE     STUDY    OF    WORDS By  RICHARD 

CHENEVIX  TRENCH,  D.D. 

Contents.—  Introduction  —  The  Poetry  in  Words  — 
The  Morality  in  Words— The  History  in  Words— The 
Rise  of  New  Words— The  Distinction  of  Words— The 
Schoolmaster's  Use  of  Words. 

No.  88. 

HEREDITARY     TRAITS,    AND    OTHER    ES- 
SAYS.—By  RICHARD  A.  PROCTOR,  F.R.A.S. 
Contents. —  Hereditary  Traits  —  Artificial  Somnam- 
bulism—Bodily Illness  as  a  Mental  Stimulant— Dual 
Consciousness. 

No.  88. 
VIGNETTES      FROM     NATURE.— By    GRANT 

ALLEN. 

Contents  (in  part). —  Fallow  Deer — The  Heron's 
Haunt— Wild  Thyme  — The  Fall  of  the  Leaf— The 
Hedgehog's  Hole — Seaside  Weeds — The  Donkey's  An- 
cestors. 0 

No.  84. 

THE   PHILOSOPHY  OF  SYTLE.— By  HERBERT 
SPENCER.— To  which  is  added  THE    MOTHER 
TONGUE — By  ALEXANDER  BAIN.  LL.D. 
Contents. — The   Principle   of  Economy   Applied   to 
Words — Effect  of  Figurative  Language  Explained— Ar- 
rangement of  Minor  Images  MI  Building  up  a  Thought 
:  — The    Superiority   of    Poetry  to    Prose    Explained — 
i  Causes   of    Force    in    Language   which    depend    upon 
I  Economy    of    the    Mental    Sensibilities — The    Mother 
I  Tongue. 

No.  85. 

•  ORIENTAL    RELIGIONS — Edited  by  Rev.  JOHN 
CAIRD,  D.D.,  President  of  the  University  of  Glasgow. 
Contents.—  Brahmanism— Buddhism— Confucianism 
— Zoroaster  and  the  Zend  Avesta. 

No.  86. 

LECTURES     ON    EVOLUTION,  with    an    Ap- 
pendix on  the  Study  of  Biology.— By  THOMAS 
H.  HUXLEY.  F.R.S.— Illustrated. 
Contents. —  The  Three  Hypotheses  Respecting  the 
j  History  of  Nature— The  Hypothesis  of  Evolution :  the 
!  Neutral  and  Favorable  Evidence — The  Demonstrative 
Evidence  of  Evolution — The  Study  of  Biology. 

No.  87. 

SIX    LECTURES     ON    LIGHT.— By  JOHN  TYN 
DALL,  F.R.S.— Illustrated. 

Contents.—  Introductory  —  Origin  of  Physical  The- 
ories — Relation  of  Theories  to  Experience — Chromatir 
i  Phenomena  Produced  by  Crystals— Range  of  Vision 
j  and  Range  of  Radiation — Spectrum  Analysis. 


THE    HTTMBOLDT  ./,/// AM  AT    or   SCIENCE. 


\,,..  :;«•»  IIM.I  :;-.».     i..  •  ii  nmnh.T. 

i  <X.K  \\     SKI:K  in -:s  AT  IKMII:   AND 

AHKOAD — In  two  parts,  each  complete  in  itself. 
AKCHIBAI.I'  ;;  S. 

-Part  I.— My  First  ( ;,•<>!, ^ir.ul  Excursion 

—  "The  Old  Man  of  I],  roura  Stoiii-..t   Kil- 

lochan — The  Colliers  of  Carrick — Ainoiii:  the  Volcanoes 

•itral   Franct — The  Old  Glaciers  of  Norway  find 

:ul — Rock-Weathering     Measured     by    Decay    of 

I'u:  inieTit  of  Primeval  Europe  —  In  Wy- 

oming—Tin-   I ii >ys.'i-s    of     tilt'    Yellowstone— 'Phi'     Lava 

irthwestern  Europe — The  Scottish  School 
•aphical    Evolution — The   Geological 
Influences  which   have  affected  the  Course  of  British 
History. 

No.     10. 

THi:    SCIENTIFIC   KMDKNCE  OF  ORGANIC 
EVOLUTION — By  GEORGE  J.  ROMANES,  F.R.S. 
'.•iits  tin  part).  — The  Argument  from  Classifica- 
tion— from  Morphology  or  Structure — from  Geology — 
from   Geographical   Distribution — from  Embryology — 
from  Certain  General  Considerations. 

N ...  41. 
CTKRENT   DISCUSSIONS   IN   SCIENCE.— By 

\V.  M.  WILLIAMS,  F.C.S. 

'••ntx  (in  part).— The  Fuel  of  the  Sun— Origin  of 
Lunar  Volcanoes  —  Aerial  Exploration  of  the  Arctic 
Regions — The  Air  of  Stove-heated  Rooms,  &c. 

No.  42. 
HISTORY  OF  THE    SCIENCE  OF  POLITICS. 

By  FREDERICK  POLLOCK. 

Contents.— The  Place  of  Politics  in  Human  Knowl- 
edge—The Classic  Period:  Pericles,  Socrates,  Plato, 
Aristotle.  &c.— The  Medieval  Period:  The  Papacy  and 
the  Empire — Beginning  of  the  Modern  Period:  Machi- 
avelli,  Hobbes  — The  Modern  Period:  Locke,  Hooker, 
Blackstone.  Hume,  Montesquieu.  Burke  —  The  Present 
Century:  Bentham,  Austin,  Kant,  Savigny,  Spencer. 

No.  48. 
DARWIN  AND  HUMBOLDT:   THEIR  LIVES 

AND  WORK.— Contains  a  series  of  notices  of 
Darwin,  by  Huxley.  Romanes,  Geikie,  Thiseltpn 
Dyer. —  Also,  the  late  Prof.  Agassiz's  Centennial 
Address  on  the  Life  and  Work  of  Alexander  von 
Humboldt. 

NOB.  44  and  45.— 15  cents  each  number. 
THE   DAWN  OF  HISTORY:  An  Introduction 
to  Prehistoric  Study.— Edited  by  C.  F.  KEARY, 
M.A.,  of  the  British  Museum. —  In  two  Parts. 
Contents.—  Part  I.— Earliest  Traces  of  Man— The 
Second  Stone  Age— The  Growth  of  Languages— Fam 
ilies  of  Languages— The  Nations  of  the  Old  World- 
Early  Social  Life — The  Village  Community. 

Part  II.— Religion— Aryan  Religion  — The  Other 
World— Mythologies  and  Folk-Tales—Picture-Writing 
—Phonetic  Writing— Conclusion. 

No.  46. 
THE  DISEASES  OF  MEMORY.— By  TH.  RlBOT. 

Translated  from  the  French  by  J.  FITZGERALD. 

Contents. —  Memory  as  a  Biological  Fact — General 
Amnesia  — Partial  Amnesia  — Exaltation  of  Memory, 
or  Hypermnesia — Conclusion. 

No.  47. 
THE      CHILDHOOD      OF     RELIGIONS — By 

EDWARD  CLODD,  F.R.A.S. 

Contents   (in  part).—  Legends    of   the    Past    about 
>n — Creation  as  told  by  Science — Legends  of  the 
Past  about  Mankind  —  Early  Races  of  Mankind— The 
Ancient  and  Modern  Hindu  Religions,  &c. 

No.  4H. 
LIFE    IN    NATURE.—  By  JAMES  HlNTON,  author 

of  "Man  and  his  Dwelling  Place,"  &c. 

Contents  (in  part).—  Function  —  Living  Forms  — Is 
Life  Universal?  — Nutrition  — Nature  and  Man  — The 
Living  World  — The  Life  of  Man,  &c. 


No.    l!». 

Tin:    SUN:   Its  Constitution;  Its  Phenomena; 

Its    Condition.  — By    NATHAN   T.   CAHK,    LL.I)., 

,7ud-e  of  tin-  Ninth  Judicial  Circuit  Court  of  Indiana. 

Cuiitfiitfi  iin  part). —  Tin*  Sun's  Atmosphere  —  The 
Chromosphere— The  Photosphere— The  Sun's  Heat— 
TIM-  Sun's  Crust — Production  of  the  Sun's  Spots — The 
Question  of  the  Extinction  of  the  Sun,  &c. 

No*.  5O  and   51.-  15  routs  each  number. 
MONEY    AM)    Till;     MECHANISM     OF    EX- 
CM  ANCi  K.- By  Prof.  w.  STANLEY  JEVONS.  F.R.S. 

Cnnti'iitx  (in  part}. — The  Functions  of  Money — Early 
History  of  .Money— Tho  Metals  as  Money— Principles 
of  Circulation — Promissory  Notes — The  Bunking  Sys- 
tem—The Clearing  House— A  Tabular  Standard 'of 
Value— Quantity  of  Money  needed  by  a  Nation,  &c. 

No.  58. 
THE     DISEASES     OF    THE     WILL.  — By  TH. 

RIBOT,  author  of  "The  Diseases  of  Memory,"  &c. 

Translated  rrotn  the  French  by  J.  FITZGERALD,  M.A. 

Contents.— The  Question  Stated— Impairment  of  the 
Will— Lack  of  Impulsion— Excess  of  Impulsion— Im- 
pairment of  Voluntary  Attention — The  Realm  of  Ca- 
price—Extinction of  the  Will— Conclusion. 

No.  68. 

ANIMAL    AUTOMATISM,  AND    OTHER    ES- 
SAYS—  By  Prof.  THOMAS  H.  HUXLEY,  F.R.S. 

Contents — Animal  Automatism — Science  and  Cult- 
ure—Elementary Instruction  in  Physiology  — The 
Border  Territory  between  Animals  and  Plants— Uni- 
versities, Actual  and  Ideal. 

No.  54. 
THE   BIRTH  AND  GROWTH  OF  MYTH.— By 

EDWARD  CLODD,  F.R.A.S. 

Contents  (in  part).—  Nature  as  Viewed  by  Primitive 
Man— The  Sun  and  Moon  in  Mythology— The  Hindu 
SUTI  and  Cloud  Myth — Demonology — Beast  Fables — 
Survival  of  Myth  in  Historical  Narratives,  &c. 

No.  55. 
THE  SCIENTIFIC  BASIS  OF  MORALS,  AND 

OTHER     ESSAYS.  — By     WILLIAM      KlNGDON 

CLIFFORD,  F.R.S. 

Contents.—  The  Scientific  Basis  of  Morals  — Right 
and  Wrong— Ethics  of  Belief —Ethics  of  Religion. 

Nos.  56  and  57.— 15  cents  each  number. 
ILLUSIONS:     A    PSYCHOLOGICAL     STUDY. 

By  JAMES  SULLY. 

Contents.— The  Study  of  Illusion— Classification  of 
Illusions — Illusions  of  Perception — Dreams — Illusions 
of  Introspection— Other  Quasi-Presentative  Illusions- 
Illusions  of  Memory — Illusions  of  Belief — Results. 

Nos.  58  and  59. —  Two  double  numbers,  80  cents  each. 

THE     ORIGIN     OF     SPECIES.  —  By   CHARLES 

DARWIN,  M.A.,  F.R.S. 

This  is  Darwin's  famous  work  complete,  with  index 
and  glossary. 

No.  60. 
THE     CHILDHOOD    OF    THE    WORLD.— By 

EDWARD  CLODD,  F.R.A.S. 

Contents  (in  part).  —  Man's  First  Wants  —  Man's 
First  Tools  —  Fire  —  Dwellings  —  Use  of  Metals  —  Lan- 
guage—Writing—Counting—Myths about  Sun  and 
Moon — Stars — Eclipses — Ideas  about  the  Soul — Belief 
in  Witchcraft— Fetish-worship— Idolatry,  &c. 

No.  61. 
MISCELLANEOUS     ESSAYS.- Ry  RICHARD  A. 

PROCTOR,  F.R.A.S. 

Content*. —  Strance  Coincidences — Coincidences  and 
Superstitions— Gambling  Superstitions— Learning  Lan- 
guages—Strange  Sea-creatures— The  Origin  of  Whales 
—Prayer  and  Weather. 

No.  68.—  Double  number,  80  cents. 
THE    RELIGIONS    OF    THE    ANCIENT 

WORLD.— By  GEORGE  RAWLINSON,  M.A. 

Contents. —  Religion  of  the  Ancient  Egyptians — Re- 
ligion of  the  Assyrians  and  Babylonians— Ancient  Ira- 
nians, Sanscritic  Indians,  Phcenicans,  Carthaginians, 
Etruscans— Ancient  Greeks  and  Ancient  Romans. 


THE    HUMBOLDT   LIBRARY    OF   SCIENCE. 


No.  68. 
PROGRESSIVE     MORALITY.— An    Essay    in 

Ethics.— By  THOMAS  FOWLER,  F.S.A.,  President 

of  Corpus  Christ!  College,  Oxford. 

Contents.—  The  Sanctions  of  Conduct— The  Moral 
Sanction,  or  Moral  Sentiment— Analysis  and  Forma- 
tion of  the  Moral  Sentiment— The  Moral  Test  and  its 
Justification — The  Practical  Application  of  the  Moral 
Test  to  Existing  Morality. 

No.  64. 
THE   DISTRIBUTION  OF  LIFE,  Animal  and 

Vegetable,  in   Space   and  Time.— By  ALFRED 

RUSSEL  WALLACE  and  W.  T.  THISELTON  DYER. 

Contents  (in  part). — Geographical  Distribution  of 
Land  Animals — Distribution  of  Marine  Animals — Re- 
lations of  Marine  with  Terrestrial  Zoological  Regions 
— Distribution  of  Vegetable  Life — Northern,  Southern, 
and  Tropical  Flora,  &c. 

No.  65. 
CONDITIONS  OF  MENTAL,  DEVELOPMENT, 

and    Other    Essays. —  By   WILLIAM    KINGDON 

CLIFFORD,  F.R.S. 

Contents. —  Conditions  of  Mental  Development — 
Aims  and  Instruments  of  Scientific  Thought — Atoms — 
llie  First  and  the  Last  Catastrophe. 

No.  66. 
TECHNICAL  EDUCATION,  and  Other  Essays. 

By  THOMAS  H.  HUXLEY,  F.R.S. 

Contents.—  Technical  Education— The  Connection  of 
the  Biological  Sciences  with  Medicine— Joseph  Priest- 
ley— On  Sensation  and  the  Unity  of  Structure  of  the 
Sensiferous  Organs— On  Certain  Errors  respecting  the 
Structure  of  the  Heart  attributed  to  Aristotle. 

NO.  67. 

THE    BLACK    DEATH:    An    Account   of  the 
Deadly  Pestilence  of  the  Fourteenth  Cent- 
ury.—By  J.  F.  C.  HECKER,  M.D. 
Contents.  —  General    Observations  —  The    D  isease  — 

Causes— Spread— Mortality— Moral  Effects— Physician  s 

—Appendix. 

No.  68.— Special  number,  10  cents. 

THREE  ESSAYS:  viz.,  Laws,  and  the  Order  of 
their  Discovery.— Origin  of  Animal  Worship. 
Political  Fetichism.—  By  HERBERT  SPENCER. 

No.  69.— Double  number,  80  cents. 
FETICHISM :  A  Contribution  to  Anthropology 

and    the    History    of    Religion.  —  By    FRITZ 

SCHULTZE,  Ph.D. — Translated  from  the  German  by 

J.  FITZGERALD,  M.A. 

Contents  (in  part). — The  Mind  of  the  Savage — Rela- 
tion between  the  Savage  Mind  and  its  Object— Fetich- 
ism  as  a  Religion— The  Various  Objects  of  Fetich  Wor- 
ship— The  Highest  Grade  of  Fetichism — The  Aim  of 
Fetichism. 

No.  70. 
ESSAYS,  SPECULATIVE  AND   PRACTICAL. 

By  HERBERT  SPENCER. 

Contents.—  Specialized  Administration  — "  The  Col- 
lective Wisdom" — Morals  and  Moral  Sentiments — Rea- 
sons for  Dissenting  from  the  Philosophy  of  Comte— 
What  is  Electricity? 

No.  71. 

ANTHROPOLOGY.— By  DANIEL  WILSON,  LL.D. 

Contents. —  Scope  of  the  Science  —  Man's  Place  in 
Nature— Origin  of  Man— Races  of  Mankind— Antiquity 
of  Man— Language— Development  of  Civilization. 

No.  73. 
THE    DANCING    MANIA   OF  THE    MIDDLE 

AGES By  J.  F.  C.  HECKER,  M.D. 

Contents  (in  part).— The  Dancing  Mania  in  Germany 
and  the  Netherlands— The  Dancing  Mania  in  Italy— 
The  Dancing  Mania  in  Abyssinia. 

EVOLUTION  IN  HISTORY,  LANGUAGE,  AND 

SCIENCE.— Lectures    delivered    at    the   London 
Crystal  Palace  School  of  Art,  Science,  and  Literature. 
Contents.— The  Principle  of  Causal  Evolution— Scien- 
tific Study  of  Geography  — Hereditary  Tendencies— 
Vicissitudes  of  the  English  Language. 


Nos.  74,  76,  76,  77.- See  ***  below. 
THE   DESCENT   OF  MAN,  AND   SELECTION 

IN   RELATION  TO   SEX —  By  CHARLES  DAR- 
WIN, M.A.,  F.R.S.— New  Edition.— Illustrated. 
Contents  (in party. — The  Descent  or  Origin  of  Man — 
Sexual  Selection  in  Relation  to  Man,  &c. 

*%  Numbers  74,  75,  76.  are  single  numbers  (15  cents  each). 
Number  77  is  a  double  number  (30  cents).— Price  of  the  entire 
work  (paper  covers),  75  cents.— Bound  in  cloth,  $1.60. 

No.  78. 

HISTORICAL  SKETCH  OF  THE  DISTRIBU- 
TION   OF  LAND    IN    ENGLAND By  Prof. 

WILLIAM  LLOYD  BIKKBECK,  M.A. 
Contents  (in  part).— Anglo-Saxon  Agriculture— Origin 
of  Land  Properties — The  First  Taxation  of  Land — Saxon 
Law  of  Succession  to  Land— Norman  Law  of  Succession 
— Effects  of  Strict  Entails — Inclosure  of  Waste  Lands. 

No.  79. 

SCIENTIFIC    ASPECTS    OF   SOME    FAMIL- 
IAR THINGS.— By  W  M.  WILLIAMS,  F.R.S. 
Contents.—  Social  Benefits  of  Paraffin— Formation 
of  Coal— Chemistry  of  Bog  Reclamation— The  Coloring 
of  Green  Tea— "Iron -filings  in  Tea— Origin  of  Soap- 
Action  of  Frost  on  Building  Materials,  &c.—  Fire-Clay 
and   Anthracite  —  Rumforcrs    Cooking-Stoves — Stove- 
heated  Rooms— Domestic  Ventilation,  &c. 

No.  80.— Double  number,  8O  cents. 
CHARLES  DARWIN:  HIS  LIFE  AND  WORK. 

By  GRANT  ALLHN. 

Contents  (in  part).— The  World  into  which  Darwin 
was  born — Early  Days — Darwin's  Wander- Years — The 
Darwinian  Revolution  begins — Darwin's  Place  in  the 
Evolutionary  Movement,  &c. 

No,  81. 
THE     MYSTERY    OF    MATTER — Also,    THE 

PHILOSOPHY     OF     IGNORANCE.  —  By    J. 

ALLANSON  PICTON. 

No.  88. 
ILLUSIONS   OF  THE    SENSES,  AND  OTHER 

ESSAYS.— By  RICHARD  A.  PROCTOR,  F.R.A.S. 

Contents. —  Illusions  of  the  Senses — Animals  of  the 
Present  and  the  Past— Life  in  Other  Worlds— Earth- 
quakes— Our  Dtial  Brain — A  New  Star  in  a  Star-Cloud 
—Monster  Sea-Serpents— Origin  of  Comets. 

No.  88. 
PROFIT-SHARING  BETWEEN  LABOR  AND 

CAPITAL — By  SBDLEY  TAYLOR,  M.A. 

Contents.—  Profit-shaiing  in  the  Maison  Leclaire— 
Profit-sharing  in  Industry — Profit-sharing  in  the  Paris 
and  Orleans  Railway  Company — Profit-sharing  in  Agri- 
culture— An  Irish  Experiment — Profit-sharing  in  Dis- 
tributive Enterprise. 

No.  84. 
STUDIES     CF    ANIMATED     NATURE.  — Four 

Essays  by  W.  S.  DALLAS  and  others. 

Contents.  —  Bats  —  Dragon-Flies  —  The  Glow-worm 
and  other  Phosphorescent  Animals — Minute  Organisms. 

No.  85. 
THE    ESSENTIAL   NATURE   OF  RELIGION. 

By  J.  ALLANSON  PICTON. 

Contents.—  Religion  and  Freedom  of  Thought— The 
Evolution  of  Religion  —  Fetichism —  Nature-worship — 
Prophetic  Religions  —  Religious  Dogma — The  Future 
of  Religion. 

No.  80. 

THE   UNSEEN    UNIVERSE — Also,  THE  PHI- 
LOSOPHY OF  THE   PURE   SCIENCES.— By 

WILLIAM  KINGDON  CLIFFORD,  F.R.S. 

Contents.  —  Statement  of  the  Question — Knowledge 
and  Feeling— Postulates  of  the  Science  of  Space— The 
Universal  Statements  of  Arithmetic. 

No.  87. 
THE    MORPHINE    HABIT  (Morphinomania). 

With  four  other  lectures.— By  Prof.  B.  BALL,  M.D. 

Contents. — General  Description  of  Morphinomania — 
Effects  of  the  Abuse  of  Morphine — Effects  of  Abstinence 
from  Morphine  — Diagnosis,  Prognosis,  and  Treatment 
—The  Borderland  of  Insanity— Cerebral  Dualism.  -Pro- 
longed Dreams— Insanity  in  Twins. 


THE    HUMBOLDT   LIBRARY    OF   SCIENCE. 


No.  88. 

SCIENCE     ANI>     CKIMF.     VM>    OTIIEK     ES- 
SAYS.—By  ANI>KK\V    \Vn.>.>v   F.K  El 

•r'ntji.—  Science  and  Crime     The  Earliest  known 

Life-relic — About    Kangaroos— On   (riants—  The   Polity 

of  a  Pond— Skates  and  Kuys— Lea 
N...  89. 

Till-:    GENENIS    OF    SCIENCE.— By  HKKBKKT 
vis,,  THI:  COMING  OF  AGE  OF 
••mi:    OKIGIN    OF    SPECIES."— By   1'n.i 
THOMAS   HKNKY   HTXI.KV.  1 

No.  9O. 

NOTES    ON     I   AKTHOl AKES:    with   Tlilrti-i-n 
Miscellaneous    Essays.  -By  K.  A.  PROCTMK. 
•  ntn. —  Not os  on   Earthquakes— Photographing 

D  Million  Stars— Thf  Story  of  the  Moon  — The 
Earth's  Past—  Tin-  Story  of  tin-  Earth— The  Falls  of 
Niagara— The  Unknowable— Snn- Worship -—Herbert 

••:•  on  Priesthoods  —  The  Star  of  Bethlehem  and 
a  Hible  Comet— An  Historical  Puzzle— Galileo,  Darwin, 
and  the  Pope  —  Science  and  Politics  —  Parents  and 
Children. 

>«>.  91.—  Double   nuiiilxT.  8O  cents. 
THK      RISE     OF     UNIVERSITIES.  —  By  S.   S. 

LAURIE,  LL.D. 

Contents  (in  part).— The  Romano-Hellenic  Schools- 
Influence  of  Christianity  on  Education — Charlemagne 
and  the  Ninth  CeHtury— The  First  Universities— The 
University  irf  Naples — of  Bologna — of  Paris — Constitu- 
tion of  Universities  —  Graduation  —  Oxford  and  Cam- 
bridge—University of  Prague  —  University  Studies 
uud  the  Conditions  of  Graduation. 

No.  »*.—  Double  number,  SO  cents. 
THE  FORMATION  OF  VEGETABLE  MOULD 

through  the  Action  of  Earthworms,  -with 
Observations  on  their  Habits. —  By  CHARLKS  DAR- 
WIN, LL.D.,  F.R.S. 

Contents  (in  part).—  Habits  of  Worms  — The  Part 
which  Worms  have  played  in  the  Burial  of  Ancient 
Buildings— The  Action  of  Worms  in  the  Denudation  of 
the  Land,  &c. 

\o.  98.— Special  number,  1O  cents. 

SCIENTIFIC   METHODS    OF  CAPITAL  PUN- 
ISHMENT  By  J.  MOUNT  BLEYER,  M.D. 

Contents  —  General  Review  of  the  Subject  —  Death 
by  Hanging— Death  by  Ele^ricity— Death  by  Subcuta- 
neous Injection  of  Morphine — Death  by  Chloroform — 
Death  hy  Prussic  Acid— Objections  Considered.— Also, 
an  Appendix  —  Infliction  of  the  Death  Penalty. 
By  PARK  BENJAMIN. 

Xo.  94. 
THE    FACTORS  OF  ORGANIC  EVOLUTION. 

By  HERBERT  SPENCER. 

No.  95. 
THE      DISEASES      OF     PERSONALITY.  —  By 

TH.  RIBOT.  —  Translated    from    the   French  by  J. 

FITZGERALD,  M.A. 

Contents. —  Organic  Disturbance — Affective  Disturb- 
ance—Intellective Disturbance— Dissolution  of  Person- 
ality— Conclusion. 

Xo.  96. 
A   HALF-CENTURY   OF   SCIENCE.— By  T.  H. 

HUXLEY,   F.R.S.— Also,  THE    PROGRESS    OF 

SCIENCE     from    1836    to    1886.— By  GRANT 

ALLEN. 

Xo.  97. 
THE     PLEASURES     OF    LIFE — By   Sir    JOHN 

LUBBOOK,  F.R.S.,  D.C.L.,  LL.D.— PART  FIRST. 

Contents.— The  Duty  of  Happiness— The  Happiness 
of  Duty— A  Song  of  Books— The  Choice  of  Books— The 
Blessing  of  Friends — The  Value  of  Time— The  Pleasures 
of  Travel-The  Pleasures  of  Home— Science— Education. 

**»  PART  SECOND. — For  the  contents  of  Part  Second 
see  No.  Ill  of  this  Catalogue. 

No.  98.— Special  number,  19  cents. 
COSMIC    E3IOTION — Also,  THE    TEACHING 

OF  SCIENCE.— By  WILLIAM  KINUDON  CLIFFORD. 


NATI-RE-STl'DIES.-  Four  Essays  by  various  au- 

thors.   viz., 

I.—  I  la  .....  .       By   I'n.f.    F.    I;  .  I\VK. 

II.—  liirds  of  r:»>s:i^«-.    -!:y  Dr.  KMP.KKT  BKOWN. 

III.—  Snow.—  By  <;KOK<;K  <i.  <  'HISHOLM.  F.  i 

IV.—  Caves  —  By  .TAMES   DALLAS,   F.L.s. 

No.  100. 
SCIENCE    AND    POETKV,   AND    OTHER    ES- 

•v\\s._B»'  ANDICKW   WILSON,   F.K.s.K. 

r^/i^/iYx.--  Science  and  Poetry—  The  Place.   Method. 
and  Advai'iages  of   Biology  In  Ordinary   Education  — 
Science-Culture  for  the  Masses—  The  Law  of  Li; 
and  its  Working 

Xo.  101. 
.ESTHETICS.—  DREAMS  __  By  JAMKS   SULLY. 


./••/KSTHKTICS."—  Metaphysical  Problems 

—  Scientific  Problems  —  History  of  Systems  —  German, 
French.  Italian.  Dutch.  and  English  Writers  on  ^Esthetics. 

Ctinti'iit*  «f"  DKKA.MS."—  The  Dream  as  Immediate 
Objective  Experience—  The  Dream  as  a  Communication 
from  a  Supernatural  Being  —  Modern  Theory  of  Dreams 

—  The   Sources   of   Dream-Materials—  The   Order  of 
Dream-Combinations  —  The  Objective  Reality  and  In- 
tensity of  Dream-Imaginations. 

Also.  ASSOCIATION  OF  IDEAS  __  By  Prof. 
GEORGE  CROOM  ROBERTSON. 

Xo.  ioa. 
ULTIMATE     FINANCE.  —  A    True    Theory    of 

Co-operation.—  By  WILLIAM  NELSON  BLACK. 

Contents.—  The  Origin  of  Social  Discontent  —  Def- 
inition of  Capital  —  Men  not  Capitalists  because  not 
Creators  of  Capital  —  Social  Results  Considered  —  The 
Evolution  of  Finance  —  Every  Man  his  own  House- 
holder—Illustrations from  Real  Life—  Effects  of  Mate- 
rial Growth  —  Objections  Answered  —  Some  Political 
Reflections  —  Bond  Insurance  Companies. 

**»  PART  SECOND.—  For  the  contents  of  Part  Second 
see  No.  107  of  this  Catalogue. 

Xo.  1O8. 
THE     COMING     SLAVERY.—  THE     SINS     OF 

LEGISLATORS  —  THE  GREAT  POLITICAL 

SUPERSTITION.  -Three  Essays   by  HERBERT 

SPENCER. 

No.  1O4. 

TROPICAL    AFRICA.  —  By  HENRY   DRUMMOND, 

LL.D.,  F.R.S.E.,  L.G.S. 

Contents  (in  part).—  The  Water-Route  to  the  Heart 
of  Africa  —  The  East  African  Lake  Country  —  The  Aspect 
of  the  Heart  of  Africa—  The  Country  and  its  People— 
The  Heart  -Disease  of  Africa  —  The'  White  Ant  —  The 
Ways  of  African  Insects—  A  Political  Warning,  &e. 

Xo.  1O5. 
FREEDOM    IN    SCIENCE    AND    TEACHING. 

By  ERNST  HAECKEL,  University  of  Jena. 

Contents.  —  Development  and  Creation  —  Certain 
Proofs  of  the  Doctrine  of  Descent  —  The  Skull-Theory 
and  the  Ape-Theory  —  The  Cell-Soul  and  the  Cellular 
Psychology  —  The  Genetic  and  the  Dogmatic  Methods 
of  Teaching—  The  Doctrine  of  Descent  and  Social 
Democracy  —  Ignorabinius  et  Restringamur. 

Xo.  106,    . 
FORClkstjcND     ENERGY.  —  A  Theory  of   Dy- 

iiuiiiics  —  By  GRANT  ALLEN. 

Content*  (in  part).  —  Power  —  Force  —  Energy  —  The 
Indestructibility  of  Power  —  The  Nature  of  Energy  — 
The  Nature  of  Motion—  The  Solar  System—  The  Earth 
—Organic  Life—  The  Animal  Organism,  &e. 

No.  1O7. 
ULTIMATE     FINANCE  --  A    True    Theory    of 

Wealth.—  By  WILLIAM   NELSON   BLACK. 

Contents.—  The  Origin  of  Property—  The  Evolution 
of  Wealth  —  Banking,  and  its  Relatioii  to  Accumulation 

—  The  Relation  of  Insurance  to  Accumulation  —  The 
Creative  and  Benevolent  Features  of  Fortune-hunting 

—  Wealth  an  Enforced  Contributor  to  the  Public  Wel- 
fare—The Impairment  and  Destruction  of  Property. 

„%  PART  FIRST.—  For  the  contents  of  Part  First  see 
No.  102  of  this  Catalogue. 


THE    HUMBOLDT   LIBRARY   OF   SCIENCE. 


Nou.  1O8  and  1O9.-  No.  108  is  a  double  number,  8O  cents. 
ENGLISH:  PAST  AND  PRESENT.  — A  Series 

of  Eight  Lectures  by  RICHARD  CHENEVIX  TRENCH, 

D.D.,  Archbishop  of  Dublin. 

Contents.— The  English  Vocabulary  —  English  as  it 
might  have  been— Gains  of  the  English  Language— Dim- 
inutions of  the  English  Language  —  Changes  in  the 
Meaning  of  English  Words — Changes  in  the  Spelling  of 
English  Words— Index  of  Words  and  Phrases. 

No.  HO.— Double  number,  SO  cents. 

THE    STORY    OF    CREATION — A  Plain  Ac- 
count   of  Evolution.— By  EDWARD  CLODD,  au- 
thor of  "The  Childhood  of  the  World,"  "The  Child- 
hood of  Religions,"  &c.— Eighty  Illustrations. 
Contents  (in  part).— The  Universe  — Distribution  of 
Matter  in  Space— The  Sun  and  Planets— The  Past  Life- 
History  of  the  Earth— Present  Life-Forms— The  Uni- 
verse: Mode  of  its  Becoming  and  Growth — The  Origin 
of  Life-Forms— The  Origin  "of  Species— Proofs  of  the 
Derivation  of  Species — Social  Evolution,  &c. 

No.  111. 

THE  PLEASURES  OF  LIFE.— By  Sir  JOHN 
LUBBOCK,  F.R.S.,  D.C.L.,  LL.D.— PART  SECOND. 

Contents.— Ambition  —Wealth— Health— Love— Art 
Poetry — Music — The  Beauties  of  Nature — The  Troubles 
of  Lite — Labor  and  Rest — Religion — The  Hope  of  Prog- 
ress— The  Destiny  of  Man. 

***  PART  FIRST. — For  the  contents  of  Part  First  see 
No.  97  of  this  Catalogue. 

No.  112. 
PSYCHOLOGY  OF  ATTENTION — ByTH.RlBOT. 

Translated  from  the  French  by  J.  FITZGERALD.  M.A. 

Contents  (in  part). —  Purpose  of  this  treatise:  Study 
of  the  Mechanism  of  Attention — Spontaneous  or  Nat- 
ural Attention  —  Voluntary  or  Artificial  Attention  — 
Morbid  States  of  Attention  —  Attention  dependent  on 
Affective  States— Physical  Condition  of  Attention. 

No.  118.— Double  number,  80  cents. 
HYPNOTISM :  ITS  HISTORY  AND  PRESENT 

DEVELOPMENT.— By  FREDRIK    BJORNSTROM, 

M.D.,  Head  Physician  of  the  Stockholm  Hospital. 

Contents.  —  Historical  Retrospect  —  Definition  of 
Hypnotism  —  Susceptibility  to  Hypnotism  —  Means  or 
Methods  of  Hypnotizing  — Stages  or  Degrees  of  Hyp- 
notism—Unilateral Hypnotism  —  Physical  Effects' of 
Hypnotism — Psychical  Effects  of  Hypnotism — Sugges- 
tion— Hypnotism  as  a  Remedial  Agent — Hypnotism  as 
a  Means  of  Education,  or  as  a  Moral  Remedy — Hyp- 
notism and  the  Law — Misuses  and  Dangers  of  Hypno- 
tism— Bibliography  of  Hypnotism. 
***  5O,OOO  copies  sold  last  year. 
No.  114.—  Double  number,  SO  cents. 

CHRISTIANITY  AND  AGNOSTICISM.-A  Con- 
troversy by  HENRY  WACE,  D.D.,  Prof.  HUXLEY,  The 
Bishop  of  Peterborough,  W.  H.  MALLOCK,  and  Mrs. 
HUMPHRY  WARI>. 

Contents  (in  part). —  Agnosticism  —  Christianity  and 
Agnosticism — The  Value  of  Witness  to  the  Miraculous 
—"Cowardly  Agnosticism"— The  New  Reformation. 

Nos.  lift  and  116.—  Two  double  numbers,  SO  cents  each. 
DARWINISM:     AN    EXPOSITION     OF    THE 
THEORY  OF  NATURAL  SELECTfVLV,  with 
Some  of  its  Applications. —  By  ALFRED  RUSSEL 
WALLACE,  LL.D.,  F.L.S.,  &c.— With  Portrait  of  the 
author,  colored  map,  and  numerous  illustrations. 
Contents. —  What  are  "Species,"  and  what  is  meant 
by  their  "Origin"— The  Struggle  for  Existence  — The 
variability  of  Species  in  a  State  of  Nature — Variation 
of  Domesticated  Animals  and  Cultivated  Plants— Nat- 
ural Selection  by  Variation  and  Survival  of  the  Fittest 
—Difficulties  and  Objections— The  Origin  and  Uses  of 
Color  in  Animals— Warning  Coloration  and  Mimicry- 
Colors   and    Ornaments    characteristic    of    Sex  —  The 
Special  Colors  of  Plants — The  Geographical  Distribu- 
tion of  Organisms — The  Geological  Evidences  of  Evolu- 
tion— Fundamental  Problems  in  Relation  to  Variation 
and  Heredity — Darwinism  applied  to  Man. 


No.  11?.—  Double  number,  SO  cents. 
MODERN  SCIENCE  and  MODERN  THOUGHT 

A  Clear  and  Concise  View  of  the  Principal  Results 

of  Modern  Science,  and  of  the  Revolution  wlm-h 

they  have  effected  in  Modern  Thought.— By  S.LAINO. 
PART  I.— MODERN  SCIENCE. 

Contents.  —  Space  —  Time— Matter— Life  —Ant  iqu  i  t  y 
of  Man  —  Man's  Place  in  Nature. 

No.  118.— Single  number,  15  cents. 
MODERN  SCIENCE  and  MODERN  THOUGHT 

With  a  Supplemental  Chapter  on  Gladstone's  "Dawn 

of  Creation"  and  "Proem  to  Genesis,"  and  on  Drum- 

mond's  "Natural  Law  in  the  Spiritual  World."— 

By  S.  LAINO. 

PART  II.— MODERN  THOUGHT. 

Contents.— Modern  Thought— Miracles— Christianity 
without  Miracles— Practical  Life. 

No.  11S>. 

THE     ELECTRIC     LIGHT.— Also, 
THE    STORING   OF  ELECTRICAL  ENERGY. 

By  GERALD  MOLLOY,  D.D.,  D.Sc.— With  numerous 

illustrations. 

Contents.— How  the  Electric  Current  is  Produced— 
How  the  Electric  Current  is  made  to  yield  the  Electric 
Light— The  Recent  Progress  and  Development  of  the 
Storage  Battery. 

No.  ISO. 
THE    MODERN    THEORY  OF  HEAT,  as  illus 

trated  by  the  Phenomena  of  the  Latent  Heat  of 

Liquids  and  of  Vapors.— By  GERALD  MOLLOY,  D.D., 

D.Sc.— With  numerous  illustrations. 

Contents.— The  Latent  Heat  of  Liquids— The  Latent 
Heat  of  Vapors.— To  which  is  added 
THE  SUN  AS  A  STOREHOUSE  OF  ENERGY. 

By  the  same  author.— With  numerous  illustrations. 

Contents.—  Immensity  of  the  Sun's  Energy— Source 
of  the  Sun's  Energy. 

No.  121. 

UTILITARIANISM.— By  JOHN  STUART  MILL. 

Contents.—  General  Remarks— What  Utilitarianism 
is— Of  the  Ultimate  Sanction  of  the  Principle  of  Utility 
—Of  what  sort  of  Proof  the  Principle  of  Utility  is  sus- 
ceptible—The Connection  between  Justice  and  Utility. 

Now.  133  and  138.— No.  122  is  a  double  number,  80  cents 
UPON  THE  ORIGIN  OF  ALPINE  AND  ITAL- 
IAN   LAKES,    and    Upon    Glacial    Erosion. 

By  Sir  A.  C.  RAMSAY,  F^.S.— JOHN  BALL,  F.L.S. 

Sir  RODERICK  I.  MURCHISON,  F.R.S.,  D.C.L.— Prof. 

B.  STUDER,  of  Berne.— Prof.  A.  FAVRE,  of  Geneva. 

EDWARD  WHYMPER.— J.  W.  SPENCER,  of  Georgia. 

Contents  (in  part).—  Introduction,  with  Notes  upon 
the  Origin  and  History  of  the  Great  Lakes  of  North 
America— On  the  Glacial  Origin  of  Certain  Lakes  in 
Switzerland,  the  Black  Forest,  Great  Britain,  Sweden. 
North  America,  and  Elsewhere— Glaciers  of  the  Him- 
alayan Mountains  and  New  Zealand  compared  with 
those  of  Europe— Ancient  Glaciers  of  Aosta— Glacial 
Erosion  in  Norway  and  in  High  Latitudes. 

No.  134. 
THE    QUINTESSENCE    OF   SOCIALISM.— By 

Dr.  A.  SCHAFFLE.  —  Translated  from  the  German 

under  the   supervision  of   BERNARD   BOSANQUET, 

M.A.,  Fellow  of  University  College,  Oxford. 

Contents  (in  part). —  First  Outlines  of  the  Funda- 
mental Idea  of  Socialism — The  Means  of  Agitation — 
Proposed  Transformation  of  the  several  Fundamental 
Institutions  of  Modern  National  Economy,  &c. 

No.  135. 
DARWINISM   AND    POLITICS.— By  DAVID  G. 

RITCHIE,  M.A.,  Fellow  of  Jesus  College,  Oxford. 

Contents  (in  part).— "The  Struggle  for  Existence"  in 
Malthus  and  Darwin— The  Evolution  Theory  as  applied 
to  Human  Society— Ambiguity  of  the  phrase  "Survival 
of  the  Fittest"— Are  the  Biological  Formulse  adequate 
to  express  Social  Evolution?  —  To  which  is  added 
ADMINISTRATIVE  NIHILISM.  — By  Prof  T 

H.  HUXLEY,  F.R.S. 


THE  irrunoLnr  L 


or  SCIENCE. 


No*.  1««  mid  127.- Two  doiil.U-  nuiiili.T8.K4> 
1'IIYSIOGNOMY      AM)        E\  I'KKSSION.  -  By 

PAOLO  MANTKC.AZZA,  Direct..!- of  tin- National  Mu- 
seum of  Anthropology,  Florence i  President  of  the 
Italian  Society  of  Anthro>.<> 

','nttt  (in  part).—  Historical  Sketch  of  the  >- 
of  Physiognomy — The  Human  Pact — The  Hair  and  the 
:  — Tlu>  Alphabet   of   Kxpression  — The   K.v, 

.  Pain.  Love.    Benevolence.   Devotion,  Yen- 

n.    Iv-ligious    Feeling,    Hatred,   Cruelty,   Passion. 

Vanity.     Haughtiness.     Modesty.     Humiliation. 

Distrust.  Timidity  — The    Five  Verui.-ts    on    the 

•i  Face— Criteria  for  .Judgini:  the  Moral  Worth  of 

•  •my— Criteria  for  .Judging  the   Intellectual 

.    Valu-  \c. 

\..-.  12S  an. I    I5J!>.      Two  .h.ulili-  liunil.ris,  KO  o-nts  vHi'li. 
THK     INIMSTKI A  I,    REVOLUTION    OF   THE 
EIGHTEENTH    CENTI-HY     IN     ENGLAND. 

P.y  the  late  AKN.U.I)  ToYNBKK,  Tutor  of  Balliol 
College.  Oxford. 

.  nt.<  (in  jiftrt).—  England   in    1760:    Population. 

'.Iture.   Manufactures   and   Trade.  Decay  of   tlie 

.-iiuy.  The   Condition   of   the  Wage-earners — The 

•  h  of  Pauperism— The  Wage-fund  Theory— The 

Future  of  the  Working  Classes,  &c. 

No*.  ISO  mid  181.—  Two  double  numbers.  SO  cents  each. 
THK   ORIGIN  OF  THE  ARYANS.— An  Account 

of  the  Prehistoric  Ethnology  and  Civilization  of 
Europe.—  By  ISAAC  TAYLOR.  M.A.—  Illustrated. 

••'ate  (in  part). —  The  Aryan  Controversy  —  The 
-one  Races  of  Europe — The  Neolithic- Culture — 
The  Aryan  Race— The  Evolution  of  Aryan  Speech— 
(  The  Aryan  Mythology,  &c. 

No«.  188  and  188.—  Two  double  numbers.  SO  cents  each. 
[•  THE   EVOLUTION  OF  SEX — By  Prof.  PATRICK 
GEDDES  and  J.  ARTHUR  THOMSON.— Illustrated. 
C'untcnts  (in  part). —  The  Sexes  and  Sexual  Selection 
-  -The    Determination    of    Sex  —  Sexual    Organs    and 
Tissues  —  Herniaphroditism  —  Sexual    Reproduction  — 
£  Special  Physiology  of  Sex  and  Reproduction,  &c. 

No,  184.—  Double  number,  SO  cents. 

THE  LAW  OF  PRIVATE  RIGHT.-By  GEORGE 
H.  SMITH,  author  of  "Elements  of  Right,  and  of 
the  Law."  "The  Certainty  of  the  Law,  and  the 
Uncertainty  of  Judicial  Decisions,"  &c. 

•  ••nts  (in  part). —  Analytical  Outline  of  the  Law 
of  Private  Right— Of  the  Nature  of  Right,  and  of  the 
l.n'.v   of    Private   Right,    and    their    Relation   to  each 
other— Historical  Development  of  the  Law— Historical 

"pment  of   Equity  —  Of  the  Nature  and  of  the 

•  i  and  Principles  of  Right — Definition  of  Rights 
— The  Standard  of  Right  and  Wrong,  &c. 

No*.  135,186,187,188.— Four  double  numbers,  80  cents  each. 
CAPITAL:    A   Critical   Analysis   of  Capitalist 

Production. —  By  KARL  MARX. — Translated  from 
the  third  German  edition  by  SAMUEL  MOORE  and 
EDWARD  AVELIXG.— Edited  by  FREDERICK  ENGELS. 
The  only  American  edition. —  Carefully  Revised. 

\n  jirirt).—  Commodities  and  Money— The 
•urination  of  Money  into  Capital — The  Production 
"lute  Surplus  Value— The  Production  of  Relative 
is  Value  — The  Production  of  Absolute  and  of 
'Relative  Surplus  Value — Wages  —  Time-wages  —  Piece- 
-National  Differences  of  Wages— The  Accumu- 
of  Capital  —  Conversion  of  Surplus  Value  into 
il — The  So-called  Primitive  Accumulation,  &c. 
('ailed  the  Bible  of  the  working  class. 
\o.  1SJ». 

LIGHTNING,  THUNDER,  AND    LIGHTNJNG- 
|     CONDUCTORS.  — By   GERALD    MOLLOY,    D.D., 

lt.Sc.—  Illustrated. 

l|  Contents  (in  part). —  Identity  of  Lightning  and  Elec- 

— Franklin's   Experiment — Immediate   Cause   of 

Lightning— Forked  Lightning.  Sheet  Lightning.  Globe 

Lightning— Physical    Cause   of   Thunder  —  Rolling   of 

Thunder —  Lightning-Conductors  —  Recent  Controversy 

.-on  Lightning-Conductors,  &c. 


No.   I  »<>. 
WHAT    IS    .Ml  SIC?- With  an  Appendix  on  How 

the  (ie.niietrical  Lines  have  their  Counterparts  in 

Music.— By  ISAAC  L.  RICK. 

Contfiitx.—  Chinese  Theory— Hindoo  Theory— Egyp- 
tian Theory— Grecian  Theories— Arabic-Persian  Theory 
— Scholastic  Theories — Euler's  Theory — Herbert  Speil- 
heorjr— Helmholtz's  Theory. 

\<>.  1 41. 
AICI-:    THE    EFFECTS  OF  USE   AND    DISl  SE 

I  Ml  i.  KITE  I)?  — An    Examination    of    the  View 

held  liy  Spencer  and  Darwin.— By  WILLIAM  PLATT 

BALL. 

C,'nt,',it.<  dn  },a>-t).—  Importance  and  Bearing  of  the 
Inquiry— Spencer's  Kxamples  and  Arguments  — Dar- 
win's Examples— Inherited  Injuries  — Miscellaneous 
( 'onsiderat  ions  —  Conclusions. 

No-.  1  IM  HIM!  148. —  Two  double  numbers,  80  rents  each. 
V  VINDICATION  of  the  RIGHTS  OF  WOMAN. 
With  Strictures  on  Political   and  Moral   Subjects. 
By  MARY  WOLLSTONSCRATT.— New  edition,  with 
an  Introduction  by  Mrs.  HENRY  FAWCETT. 
f'<,,it<-ntx  (in  part). —The  Rights  and  Involved  Duties 
of  Mankind  Considered  —  The  Prevailing  Opinion  of  a 
Sexual  Character  Discussed— Observations  on  the  State 
of  Degradation  to  which  Woman  is  Reduced  by  Various 
( 'a  uses— Morality  Undermined  by  Sexual  Notions  of  the 
Importance  of  a  Good  Reputation,  &c. 

No.  144. 

CIVILIZATION:     ITS    CAUSE    AND    CURE. 
And  Other  Essays.— By  EDWARD  CARPENTER. 
Contents.—  Civilization  :  Its  Cause  and  Cure  — Exfo- 
liation:  Lamarck  versus  Darwin  —  Custom. 

No.  145. 

BODY    AND    MIND.— With    Other    Essays.— 
By  WILLIAM  KINGDON  CLIFFORD,  F.R.S. 
Contents.— Body  and  Mind— On  the  Nature  of  Things 
in  Themselves— On  Theories  of  the  Physical  Forces. 

No.  146. 

SOCIAL     DISEASES     AND     WORSE     REM- 
EDIES—  By  THOMAS  HENRY  HUXLEY,  F.R.S. 
Contend.— The   Struggle  for  Existence  in  Human 
Society— In  Darkest  England— Articles  of  War  of  the 
Salvation  Army — Form  of  Application — The  Doctrines 
of  the  Salvation  Army— Notice  to  Candidates. 

No.  147. 

THE    SOUL    OF   MAN    UNDER    SOCIALISM. 
By  OSCAR  WILDE. 

THE    SOCIALIST  IDEAL— AUT By  WILLIAM 

MORRIS. 

THE  COMING  SOLIDARITY.— By  W.  C.  OWEN. 
Noa.  148  and  149.- No.  148  is  a  double  number,  8O  cents. 
ELECTRICITY:  THE  SCIENCE  OF  THE 
NINETEENTH  CENTURY.- By  E.  M.  CAIL- 
LARD,  author  of  "  The  Invisible  Powers  of  Nature." 
With  Illustrations. 

Content*  (in  part).—  Electrical  Machines  and  their 
Effects  —  Atmospheric  Electricity  —  Thunderstorms  — 
Magnetism  of  the  Earth  — Current  Electricity  — The 
Galvanic  Battery— Practical  Appliances  of  Electricity— 
Electric  Lighting  — Transmission  of  Power  by  Elec- 
tricity—The Electric  Telegraph— The  Telephone,  &c. 

No.  150. 

DEGFJNERATION :  A  Chapter  in   Darwinism. 
By  E.  RAY  LANKESTER.  M.A.,  F.R.S.— Illustrated. 

Also,  PARTHENOGENESIS By  same  author. 

No*.  151   to  158.- Trice  $1.20. 

MENTAL  SUGGESTION.— By  Dr.  JTOCHOROWIOS, 

Sometime  Professor  Extraordinarius  of  Psychology 
and  Nature-Philosophy  in  the  University  "of  Lena- 
nei-g.— With  a  Preface  by  CHARLES  RiCHET.— Trans- 
lated from  the  French  by  J.  FITZGERALD,  M.A. 
("•.nh-ittx  dn  ;/(//•/).— Apparent  Mental  Suggestion— 
Probable  Mental  Snegestion— True  Mental  Suggestion 
—Transmission  of  Ideas— Mental  Suggestion  at  a  Dis- 
tance—The Elements  of  a  Scientific  Explanation,  &c. 


^L>* 

OF    THE 

UNiV£RSiTY 


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KINGDOM  OF  THE  UNSELFISH; 

OR, 

EMPIRE  OF  THE  WISE. 

BY  JOHN   LORD   PECK. 
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§ 


MONEY 

.  AND  . 

THE    MECHANISM    OF    EXCHANGE 


BY 


W.   STANLEY  JEVONS 


PART    II 


. 


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MONEY 


AND 


THE  MECHANISM  OF  EXCHANGE. 

BY  W.  STANLEY  JEVONS,  M.A.,  F.R.S., 

PROFESSOR  OF  LOGIC  AND  POLITICAL  ECONOMY  IN  THE  OWENS  COLLEGE,  MANCHESTER. 


IN   TWO   PARTS— PART   TWO. 


CHAPTER  XIV. 


INTERNATIONAL  MONEY. 

In  a  book  upon  money  written  in  the  pres- 
ent day,  reference  must  certainly  be  made  to 
the  scheme  put  forward,  and  even  the  steps 
accomplished,  toward  a  world- wide  system 
of  International  Money.  Much  time  will  no 
doubt  pass  before  such  a  notion  is  realized, 
and  the  recent  retrograde  action  of  the  Ger- 
man government  tends  to  retard  so  great  an 
achievement  of  advancing  civilization.  Yet 
in  all  our  changes  and  discussions  of  mon- 
etary matters  we  ought  to  bear  in  mind  the 
eventual  introduction  of  a  uniform  monetary 
system.  We  may  surely  look  for  a  gradual 
amelioration  in  the  relations  of  nations, 
though  wars  cannot  yet  be  avoided.  We 
have  international  copyright,  extradition  of 
criminals,  maritime  codes  of  signals,  postal 
conventions,  treaties  for  lessening  the  hor- 
rors of  war.  Nations  have  long  since  ceased 
to  be  isolated  bodies,  wishing  evil  to  all  their 
neighbors  ;  and  as  free  trade  becomes  every- 
where predominant,  and  communication  by 
means  of  railway,  steamboat,  telegraph, 
post,  and  newspaper,  continually  increases, 


we  may  look  for  the  time  when  all  people 
will  seek  to  break  down,  as  far  as  possible, 
the  barriers  between  one  family  and  another 
of  the  human  race. 

I  will  first  of  all  state  the  advantages 
which  may  be  expected  to  accrue  from  an  in- 
ternational  system  of  metallic  money,  and 
will  then  describe  in  succession  the  corre- 
sponding possible  disadvantages,  the  progress 
which  has  already  been  made  toward  the 
simplification  of  monetary  systems,  the  prin- 
cipal schemes  set  forth,  and  their  compara- 
tive merits  and  demerits. 

ADVANTAGES  OF  INTERNATIONL  MONEY. 

Short-sighted  people  have  objected  to  all 
schemes  of  international  money,  that  the  ob- 
ject in  view,  if  ever  realized,  would  only  save 
trouble  to  the  comparatively  few  people  who 
travel  from  nation  to  nation.  This  is  the 
least  of  all  the  benefits  which  the  uniformity 
of  money  would  confer.  I  am  disposed  to 
put  in  the  first  place  the  immense  good  which 
would  arise  from  facility  in  understanding  all 
statements  of  accounts,  prices,  and  statistics, 
when  expressed  in  terms  of  a  uniform  meas- 
ure of  value.  To  the  statistician  it  is  al- 
most intolerable  to  meet  with  tables  of  inform- 
ation, variously  expressed  in  francs,  pounds. 


43  l<u\]  MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


dollars,  thalers,  meters,  yards,  ells,  hundred-    DISADVANTAGES  OF  INTERNATIONAL  MONEY 
weights,  kilograms.     The  labor  of  statistical 


inquiry  is  sufficiently  great  without  the  pre- 
liminary labor  of  reducing  great  masses  of 
figures  to  a  common  unit.  To  the  merchant, 
or  man  of  business,  the  variety  of  moneys 
and  measures  is  equally  perplexing.  In 


There  are,  no  doubt,  cf-rtxin  evils  which 
might  possibly  arise  from  the  circulation  of 
money  between  nation  and  nation.  One 
government,  for  instance,  might  coin  money 
slightly  inferior  to  the  proper  standard,  and 


many  places  the  value  of  the  currency  is  not  '  sucn  money,  once  introduced,  would,  in  vir- 
certainly  known,  and  only  those  who  happen  ! tue  of  Gresham's  law,  be  difficult  to  dislodge, 
to  have  a  special  knowledge  of  a  locality,  and  |  The  French  mint  has  been  in  fault  in  this 
the  money  and  measures  there  employed,  can  \  respect.  French«gold  coin,  when  carefully 
venture  to  trade  with  it.  The  difference  of  assayed,  is  found  to  have  a  fineness  of  898  or 
monetary  systems,  again,  renders  calculations  ^99  parts  in  looo,  instead  of  goo  parts, 
relating  to  the  foreign  exchanges  very  com-  |  There  is,  indeed,  a  mint  remedy  of  two 
plex,  so  that  profit  falls  to  those  who  have  ac-  !  Parts»  so  that  the  coin  was  legally  issued  ;  yet 
quired  skill  in  calculations  of  the  kind.  |  tnp  mint  authorities  have  taken  advantage  of 

In  the  second  place,  the  actual  adjustment  i  ^is  remedy  in  an  improper  way.  On  the 
of  the  foreign  exchanges  would  be  rendered  •  average,  the  coins  issued  by  any  mint  ought 
more  prompt  and  perfect  when  the  coin  of  to  have  almost  the  exact  standard  fineness, 
one  country  could  be  transferred  directly  in-  and  the  divergence  allowed  under  the  name 
to  the  circulation  of  another  country.  One  '  °f  remedv  is  only  intended  to  cover  accidental 
Tesult  of  international  currency  would  be  '  faults  of  workmanship  in  particular  coins, 
that  the  precious  metals  would  be  held  more  and  not  in  intentional  average  divergence 
in  the  form  of  coin.  At  the  present  time,  from  the  standard. 

what  is  coined  by  one  country  has  often  to  be  |  .It:  is  hardly  to  be  supposed  that  a  state  is- 
melted  up  and  recoined  by  another,  although  \  suing  money  under  international  obligations 
to  some  extent  the  principal  kinds  of  coin,  '  w°uld  wish  to  make  a  profit  of  one  or  two 
English  sovereigns,  American  eagles,  French  Parts  in  a  thousand  in  this  way.  To  secure 


uniformity,  it  would  be  desirable  for  the  as- 
sayers  and  officers  of  different  mints  to  meet 
and  agree  upon  a  common  standard  process, 


and  uniform   trial 
not  show  that  one 


plates.      Experience  does 
nation  need    distrust    the 


faithfulness  of  another  in  matters  of  coining. 
We  do  not  look  upon  Spain  and  Mexico  as 
models  of  financial  integrity,  yet  so  faithfully 


napoleons,     Mexican   dollars,    are    held    by 

banks  and  bought  and  sold.     With  a  single 

system  of  coins,  all  stocks  of  gold  and  silver 

would,  as  a  general  rule,  be  kept  in  the  coined 

«tate,    ready  to  go   into   circulation   at   any 

moment.     Some  small  savings  would  accrue 

from  the   less  amount  of  mintage   required, 

though  this  is  a  very  secondary  matter.  One  „     , ,  ,  , 

of  more  importance   is  the  lessened  oppor-  |  used    the  mints  of  those    countries  to    main- 

tunities  of  profit  which  there  would  be  for  |  tain  the  standard  of  weight  and  fineness  in 

the  issue  of  silver  dollars,  that  these  coins 
have  for  a  hundred  years  past  been  received 
by  tale  almost  without  question  in  most  parts 
of  the  world,  and  were  at  one  time  made 
current  in  England.  The  possibility  of  in- 
ternational currency  is  proved  by  the  fact 
that,  without  any  international  treaties,  the 
coins  of  several  nations  are  recognized  as  a 
legal  tender  elsewhere.  This  is  the  case  with 
English  sovereigns,  not  only  in  the  British 
colonies  and  possessions,  but  also  in  Portugal, 


bullion  brokers  and  others,  who  trade  upon 
the^difficulties  of  conducting  the  bullion  traf  - 
fie  in  the  present  state  of  things.  Nor  is  the 
saving  of  trouble  and  loss  to  travelers  a  mat- 
ter of  indifference.  As  international  com- 
munication increases,  the  number  of  trav- 
elers will  increase,  and  we  ought  to  break 
^lown  as  far  as  possible,  all  factitious  diffi- 
culties. 

One  benefit  of  international  money  which 
has  been  insufficiently  noticed,  is  the  improve- 
ment which  its  adoption  would  probably  ef- 
fect in  the  currencies  of  minor  and  half-civil- 
ized states.  In  many  parts  of  the  world 
there  is  still  a  mixture  of  coins  of  various 
and  uncertain  value ;  and  as  long  as  the 
principal  nations  coin  money  on  totally  dif- 
ferent systems,  the  coins  will  circulate  else- 
where and  make  confusion.  Already  for  a 
long  time  the  practically  international  currency 
of  the  Mexican  dollar  has  been  a  matter  of 
great  convenience  ;  and  where  it  is  the  unit 
•of  value,  merchants  know  on  what  basis  they 


Now,  if  all  the  lead- 
to   issue  coins  of  one 


are  making  contracts, 
ing  nations  combined 
uniform  series  of  weight  and  sizes,  these 
•would  by  degrees  form  the  currencies  of  non- 
coining  states,  and  would  effect  a  reform  in 
the  most  remote  pa.rts  of  the  world. 


Egypt,  Brazil,  and  probably  elsewhere.  The 
napoleon  has  circulated  freely  in  most  parts 
of  Europe.  The  ducat  of  Holland  has  also 
been  a  highly  esteemed  coin;  and  of  the 
wide  circulation  of  several  species  of  dollars 
I  have  frequently  spoken. 

CONFLICT    OF   MONETARY   SYSTEMS. 

The  chief  difficulty  in  establishing  an  in- 
ternational money,  arises  from  the  fact  that 
there  are  several  great  nations,  the  French, 
English,  Americans,  and  Germans,  each  with 
its  own  system  of  money,  which,  from  mo- 
tives worthy  and  unworthy,  it  is  unwilling  to 
give  up.  There  is  no  overpowering  advant- 
age which  marks  out  any  one  of  these  sys- 
tems on  its  own  merits  as  distinctly  the  best. 
There  is  accordingly  a  balance  of  power 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


which  produces  a  dead  lock.  Each  of  the 
three  first-named  nations  has  much  to  say  in 
favor  of  its  own  system.  The  French  sys- 
tem, founded  on  the  franc,  is  an  eminently 
perfect  decimal  coinage,  and  has  the  prestige 
of  being  recognized  as  international  money  in 
Belgium,  Switzerland,  and  Italy,  besides 
being  adopted  with  international  currency  as 
regards  gold  in  Austria,  and  without  it  as 
regards  silver  in  Spain,  Greece,  and  some 
minor  states. 

The  English  may  very  properly  urge  that, 
though  the  subdivision  of  the  pound  is  not 
to  be  recommended,  the  pound  sterling  is  it- 
self an  excellent  unit  of  value.  It  is  the 
largest  existing  monetary  unit,  and  on  a  gold 
basis,  so  that  it  seems  to  be  peculiarly  suit- 
able for  the  growing  wealth  of  nations. 
Though  recognized  only  in  a  small  corner  of 
Europe,  namely,  Portugal,  we  must  remem- 
ber that  Europe  is  rapidly  ceasing-  to  be  the 
exclusive  centre  of  trade  and  civilization. 
In  the  Australian,  Polynesian,  and  African 
colonies  are  growing  states  which  will  make 
their  might  felt  ere  long,  and  they  adhere  to 
the  pound.  The  world-wide  extension  of 
British  commerce  and  British  shipping  makes 
the  sovereign  known  in  all  the  ports  of  the 
world. 

On  their  part,  however,  the  Americans 
might  have  much  to  say  in  favor  of  the  dollar. 
It  is  decimally  divided,  and,  as  we  shall  see, 
in  the  most  convenient  manner.  It  corre- 
sponds to  the  coins  which  have  for  two  or 
three  centuries  been  most  widely  circulated 
and  treated  as  units  of  account,  so  that  there 
is  much  weight  of  experience  in  its  favor. 
But,  above  all,  it  is  firmly  adopted  as  the 
money  of  a  nation,  which,  as  far  as  human 
wisdom  can  penetrate  the  future,  is  destined 
to  be  the  most  numerous,  rich,  and  powerful 
in  the  world.  That  nation,  which  has  arisen 
from  the  best  stock  of  England,  has  absorbed 
much  of  the  best  blood  of  other  European 
nations,  and  has  inherited  the  richest  conti- 
nent in  the  world,  must  have  an  importance 
in  coming  times  of  which  even  Americans 
are  barely  conscious. 

NTERNATIONAL  MONETARY  NEGOTIATIONS. 

It  is  quite  impossible  that  I  should  in  this 
brief  work  give  any  sufficient  sketch  of  the 
long  series  of  discussions,  meetings,  con- 
gresses, associations,  negotiations,  and  con- 
ventions which  resulted  in  the  actual  estab- 
lishment of  an  international  money  among 
the  nations  of  western  continental  Europe. 
I  must  refer  the  reader,  desirous  of  more  in- 
formation, to  the  excellent  pamphlet  of  the 
eminent  actuary,  Mr.  Frederick  Hendriks, 
which  first  made  the  subject  well  known  in 
England.  It  is  called  "  Decimal  Coinage;  a 
Plan  for  its  immediate  Extension  in  England 
in  connection  with  the  International  Coinage 
of  France  and  other  Countries."  and  was  pri- 
vately printed  in  1866.  Mr.  Seyd's  "  Treatise 
on  Bullion  and  the  Foreign  Exchanges"  may 


also  be  consulted,  and  \htjournal des  Eeono- 
mistes  is  full  of  information  on  the  subject. 

The  International  Association  for  obtain- 
ing a  Uniform  Decimal  System  of  Measures, 
Weights,  and  Coins,  was  founded  in  Paris  in 
1855,  and  the  English  branch  carried  on  act- 
ive operations.  In  1858  the  United  States 
made  proposals  towards  the  assimilation  of 
currencies.  In  1860  and  1863  important  in- 
ternational congresses  were  held  at  London 
and  Berlin,  and,  at  the  latter  one  especially, 
important  resolutions  were  adopted  which  we 
shall  have  to  consider.  It  was,  however,  the 
close  contiguity  of  the  countries,  Belgium, 
France,  Switzerland,  and  Italy,  and  the  fact 
that  French  gold,  and  even  silver  coin,  could 
not  be  prevented  from  passing  the  frontiers, 
which  forced  the  question  forward,  and  led, 
in  December,  1865,  to  an  actual  Convention 
for  International  Currency. 

The  report  of  the  Congress  of  1863  con- 
cerning currency  is  a  highly  important  docu- 
ment. It  points  out  the  superior  convenience 
of  a  gold  standard,  with  a  subsidiary  coinage 
of  silver  and  bronze ;  advocates  uniform 
fineness  of  nine  parts  in  ten  for  all  standard 
coins ;  suggests  a  definition  of  weight  of 
coins,  on  the  metric  system  ;  and,  finally, 
propounds  a  scheme  by  which  the  existing 
monetary  units  could  be  brought  into  simple 
relations  with  each  other. 

In  1870,  a  short  time  previous  to  the  de- 
claration of  war  with  Germany,  France  sum- 
moned a  fresh  Imperial  Commission,  presided 
over  by  the  Minister  of  Commerce  and  the 
Minister  President  of  the  Council  of  State 
(M.  de  Parieu),  to  take  evidence  from  all 
sides  on  the  various  questions  connected 
with  the  standard  and  its  bearing  upon  inter- 
national coinage.  No  less  than  thirty-seven 
witnesses  were  examined,  and  the  results  of 
the  inquiry,  printed  by  the  French  govern- 
ment in  two  very  large  volumes  in  1872, 
show  that  the  majority  of  the  witnesses  and 
of  the  Commissioners  were  decidedly  in  favor 
of  a  single  gold  standard. 

Owing  to  a  purely  accidental  coincidence, 
the  principal  monetary  units  already  closely 
approximate  to  simple  multiples  of  t!he 
franc.  The  following  table  shows  the  pres- 
ent relative  values  of  these  units  and  the 
multiples  to  which  it  is  proposed  to  make 
them  exactly  conform : 

Present  value    Proposed 

in  francs      ralue  in  frs. 

Franc i  i 

Florin  (Austrian,  silver)     2*47  2j£ 

Dollar  (American,  gold)    5*18  5 

Pound  sterling      ..•  25*22  25 

It  is  only  requisite  to  raise  the  florin  i'2i 
per  cent.,  and  to  lower  the  dollar  and  pound 
sterling  respectively  3*5  and  o'88  per  cent.,  to 
establish  very  simple  ratios  between  them. 
Thus,  without  any  appreciable  change  of 
monetary  systems,  it  would  be  possible  to  re- 
duce statements  from  one  mode  of  expression 


60    '.» 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


into   another  ;    moreover,    the    coins   might  |  lation,    of   the  same    weigh;,    fineness,   and 
themselves  have   international   currency,  the    value  as  at  present,  but  would  be  translated, 
/>und  sterling  serving  as  a  twenty-five  franc 
piece  in  France,  and  as  a  five-dollar  piece  in 
America,  the  American   gold   dollar  recipro- 
cally circulating  as  an  ecu  in   France,  and  a 


four-shilling  piece  in  England. 

The  congress  abstained  from  recommend- 
ing any  one  unit  for  universal  adoption,  but 
urged  that  every  nation,  not  possessing  one 
of  the  four  units  named,  should  select  that 
which  should  please  them  best.  Had  this 
scheme  been  accepted  by  all  nations  in  an 
intelligent  and  liberal  spirit,  we  should  ere 
now  have  probably  seen  our  way  clearly  to 
the  selection  of  the  best  unit.  Since  1865, 
unfortunately,  both  the  German  empire  and 
the  Scandinavian  kingdoms  have  made  alter 
ations  not  in  accordance  with  these  princi 


as  coin  of  account,  into  fifty  mils  instead  of 
forty-eight  farthings,  and  the  sixpence  into 
twenty-five  mils  instead  of  twenty-four  far- 
things. This  subdivision  is  not  more  com- 
plex than  the  one  successfully,  and  in  thfr 
almost  parallel  forms  of  fifty  and  twenty 
pfennig?,  centimes,  lire,  ore,  etc.,  pieces,  car- 
ried out  in  the  new  coinages  of  Germany, 
Scandinavia,  or  of  the  monetary  allies  of 
France.  As  to  the  mil  being  too  small  for  a. 
submultiple,  it  seems  to  be  overlooked  that  it 
is  two  and  one-half  times  as  large  as  the 
initial  submultiple  of  the  French  system,  and 
two  and  one-twenty-fifth  times  as  large  as 
that  of  the  new  German  system. 

The  second  scheme  was  suggested  by  the 
late   Professor  Graham,  and  by  Mr.  Rivers 


pies.     A   great   assimilation  of  moneys  has  I  Wilson,  in  their  Report  upon  the  Proceed- 


taken  place,  but  it  is  in  the  direction  of 
groups  of  national,  rather  than  of  interna- 
tional currencies,  although  as  has  been  dem- 
onstrated by  Mr.  Hendriksiu  several  articles 
in  the  Economist,  the  new  coins  have  many 
fresh  and  important  points  of  contact  and  of 
agreement  with  the  metrical  and  decimal 
systems,  so  that  some  real  progress  has  ac- 
tually been  accomplished. 

DECIMALIZATION   OF   ENGLISH    MONEY. 

Since  Lord  Wrottesleyin  1824  proposed  in 
parliament  to  adopt  a  decimal  subdivision  of 
Jhe  pound  sterling,  an  immense  amount  of 
discussion  has  taken  place  upon  various 
schemes  for  a  new  arrangement  of  our 
money.  The  advantages  of  several  plans 
are  so  nearly  balanced,  and  the  difficulty  of 
carrying  any  one  into  effect  is  so  great,  that 
no  practical  result  has  yet  been  achieved  by 
half  a  century  of  debate.  The  two  princi- 
pal schemes,  which  perhaps  need  alone  be 
noticed  now,  are  the  Pound  and  Mil  scheme , 
and  the  Penny  and  Ten-franc  scheme. 

The  former  of  these  schemes  reposes  upon 
the  fact  that  the  farthing  is  nearly  the  thou- 
sandth part  of  the  pound.  Since  960  farth- 
ings make  a  pound,  it  would  only  be  neces- 
sary to  alter  the  farthing  four  per  cent,  to 
obtain  the  lowest  decimal  multiple,  to  be 
called  the  mil.  The  penny  would  be  five 
toils,  like  the  French  halfpenny  or  five  cen- 
times ;  as  some  have  supposed,  a  new  coin, 
in  value  2 '4  pence,  would  have  to  be  intro- 
duced as  the  hundredth  part  of  the  pound; 
but  this  is  unnecessary,  and  the  florin  would 
be  one  hundred  mils,  and  the  half-sovereign 
five  hundred  mils.  The  great  advantage  of 
this  method  is,  that  it  retains  the  pound  as 
the  principal  unit,  together  with  several 
other  familiar  coins.  Against  it  has  been 
urged  (i)  the  supposed  fact  that  it  excludes 
the  most  familiar  of  all  coins,  the  shilling 
and  sixpence,  and  (2)  that  the  mil  is  some- 
what too  small  a  submultiple  to  begin  with. 
This  is,  however,  not  necessarily  the  case. 
The  shilling  might  remain,  as  coin  of  circu- 


ings  of  the  International  Monetary  Confer- 
ence of  1867.  It  is  founded  upon  the  fact 
that  the  ten-franc  piece  is  within  three-fourths 
of  a  penny  of  eight  shillings,  and  only  differs 
four  per  cent,  from  one  hundred  pence.  Thus 
it  would  only  be  requisite  to  introduce  a  gold 
piece  of  ten  francs,  temporarily  serving  as  a 
token  for  eight  shillings,  to  obtain  a  link  with 
the  French  system.  The  subsequent  reduc- 
tion of  the  penny  by  four  per  cent.,  and  the 
replacement  of  the  shilling  by  a  franc  or  ten- 
penny-piece,  would  give  us  a  truly  decimal 
system.  A  great  advantage  of  this  proposal 
is,  that  it  retains,  almost  unaltered,  so  famil- 
iar a  coin  as  the  penny,  and  makes  it,  as  it  is 
for  the  most  part  at  present,  the  lowest  money 
of  account.  It  is,  moreover,  in  close  accord- 
ance with  the  French  monetary  system.  The 
main  difficulty  is  that  it  involves  the  aban- 
donment of  the  pound,  which  becomes  two 
and  a-half  of  the  new  unit;  and  that,  of  all 
our  present  coins,  only  the  florin,  penny,  and 
halfpenny,  would  fall  in  conveniently.  To 
convert  sums  of  money  from  pounds  sterling 
into  the  new  currency,  it  would  be  requisite 
to  multiply  by  the  factor  two  and  a-half, 
which  would  be  regarded  by  most  people  as 
a  very  troublesome  process. 

When  the  decimalization  of  English  money 
was  first  proposed,  the  notion  of  international 
money  had  never  been  seriously  entertained, 
and  hardly  indeed  conceived.  So  much  pro- 
gress has  now  been  made,  that  it  is  impossi- 
ble to  consider  the  one  reform  without  refer- 
ence to  the  other.  The  difficulty  of  making 
any  change  whatever  is  so  great,  that  it  would 
not  be  worth  while  to  achieve  a  partial  re- 
form. 

THE  FUTURE   AMERICAN   DOLLAR. 

The  most  easy,  and  important  step  which 
can  now  be  taken  toward  an  international 
money,  consists  in  the  assimilation  of  the 
American  dollar  to  the  five-franc  piece.  A 
great  opportunity  arises  from  the  fact  that 
the  currency  of  the  United  States  is  now  a 
variable  paper  currency.  Considering  the 


MONEY   AND  THE  MECHANISM  OF  EXCHAN<;i  . 


|99J  51 


enormous  fluctuations  of  vflue  which  have 
been  experienced  in  the  last  ten  years,  it 
would  be  altogether  needless  scrupulosity  to 
bring  it  back  to  the  old  standard,  to  the  last 
degree  of  exactness.  Every  change  of  value 
of  the  currency,  whether  it  be  a  fall  or  a  rise, 
s  so  far  injurious.  Now  the  American  dollar 
consists  of  25-8  grains  of  gold,  valued  in 
English  money  at  49-316  pence.  When  gold 
is  at  one  hundred  and  eleven  the  paper  dollar 
will  be  at  a  discount  of  ten  per  cent.,  and  will 
therefore  be  worth  44*384  pence,  whereas  the 
French  dollar,  or  five-franc  gold  piece,  weighs 
24*89  grains,  and  is  worth  47*58  pence.  It 
would  be  obviously  desirable,  therefore,  to 
make  the  new  metallic  dollar  exactly  of  the 
same  weight  as  the  French  one,  and  to  com- 
mence specie  payments  when  the  greenback 
currency  shall  have  risen  to  par  with  this  coin. 
As  regards  all  contracts  made  in  paper,  all 
current  prices  and  charges,  this  change  would 
involve  no  breach  of  faith  whatever;  it  would 
in  fact  imply  less  change  and  breach  of  con- 
tracts than  if  the  paper  currency  were  reduced 
sufficiently  to  come  to  par  with  the  old 
dollar. 

The  reduction  of  weight  of  the  dollar 
would  indeed  lead  to  a  repudiation  of  all  gold 
contracts,  including  all  bonds  of  the  United 
States,  railway  companies,  and  other  bodies 
payable  in  coin,  unless  provision  were  made 
to  alter  the  terms  of  such  contracts.  This 
difficulty,  however,  could  be  overcome  by 
simply  enacting  that  each  103 >£  of  the  new 
dollars  shall  be  received  and  paid  as  equiv- 
alent to  100  of  the  old  ones. 

There  is  little  doubt  that  the  adhesion  of 
the  American  Government  to  the  proposals 
of  the  Congress  of  1863,  would  give  the  hold- 
ing turn  to  the  metric  system  of  weights, 
measures,  and  moneys.  It  is  quite  likely  that 
it  might  render  the  dollar  the  future  univer- 
sal unit.  The  fact  that  the  dollar  is  already 
the  monetary  unit  of  many  parts  of  the  world 
gives  it  large  odds.  In  becoming  assim- 
ilated to  the  French  ecu,  American  gold 
would  be  capable  of  circulation  in  Europe, 
or  wherever  the  French  napoleon  has  hither- 
to been  accepted.  It  may  seem  unpatriotic 
in  an  Englishman  to  advocate  a  change 
which  may  lead  to  the  defeat  of  the  pound 
sterling,  but  I  look  upon  any  one  scheme  of 
unification  as  better  than  none.  Whatever 
may  be  the  ultimate  results,  I  desire  to  see 
assimilation  between  the  French  and  Amer- 
ican systems  adopted  as  soon  as  possible. 
For  reasons  subsequently  stated,  I  consider 
the  dollar  so  good  a  unit  that  it  would  be 
mere  national  prejudice  to  oppose  it,  were 
4here  a  fair  chance  of  its  general  adoption. 
Even  if  5it  were  not  generally  adopted,  it 
would  be*  a  great  step  in  advance  if  Great 
Britain,  America,  and  France,  were  to  agree 
to  coin  gold  money  identical  in  weight  and 
fineness,  which  might  circulate  indifferently 
as  sovereigns,  five-dollar  pieces,  and  twenty- 
five  franc  pieces. 


GERMAN    MONETARY    REFORM. 

The  new  monetary  system  of  the  German 
Empire,  is  introducing  a  good  money  where 
all  was  before  confusion.  In  a  few  years  it 
will  hardly  be  comprehensible  to  Germans 
that  they  had  so  long  endured  a  state  of  the 
currency  in  which  two,  or  even  three  or  four, 
nconsistent  series  of  coins  were  mingle^ 
without  any  method.  In  many  respects,  tht 
new  system  is  all  that  could  be  desired.  In 
place  of  the  antiquated  silver  standard,  gold 
is  selected  as  the  measure  of  value,  the  sola 
principal  money,  and  unlimited  legal  tender. 
The  unit  of  account  is  the  mark,  consisting 
of  6*1465  grains  of  gold  of  the  fineness  ol 
9  parts  in  10.  Its  value  is,  therefore,  about 

^d.  The  principal  coin  will  be  the 
twenty-mark  piece,  weighing  122*92  grains, 
or  7*964954  grams,  and  containing  7*168459 
grams  of  pure  gold.  There  is  also  a  ten- 
mark  piece  of  exactly  half  the  weight. 

The  subordinate  coins  of  silver  and  nickel- 
copper,  are  issued  on  the  footing  of  the  com- 
posite  tender,  or  English  system,  being 
tokens.  The  seignorage  to  "be  levied  on  the 
German  silver  coins,  will  be  11*111  percent., 
exceeding  the  amounts  subtracted  from  the 
English  and  French  silver  money,  whictt 
are  about  9  and  7*784  per  cent,  respectively 

It  cannot  be  too  much  regretted  by  all  friends 
of  progress,  that,  in  deciding  upon  the  weigh* 
of  the  new  mark  piece,  the  German  Govern- 
ment should  have  studiously  avoided  assioar 
ilation  to  the  French  system.  The  sovereign 
contains  7*3224  grams  of  pure  gold,  the 
twenty-five-franc  piece  when  coined,  will 
contain  7*2581,  and  the  twenty-mark  piece 
has  been  made  to  contain  7*1685.  The  only 
ground  on  which  this  precise  weight  could 
have  been  justified,  is  that  three  marks  are 
approximately  equal  to  one  thaler.  But  so 
various  was  the  coinage  of  the  German 
States,  that  the  field  was  open  to  the  adop- 
tion of  any  system;  and  it  is  impossible  to 
suppose  that  in  so  great  a  reform  a  difference 
of  i  /^per  cent,  would  have  been  an  insuper- 
able obstacle  to  the  adoption  of  international 
coinage. 

SYSTEMS   OF   FRACTIONAL  MONEY. 

A  unit  of  value  having  been  chosen,  there 
are  three  competing  methods  according  to 
which  it  might  be  subdivided,  the  binary, 
duodecimal,  and  decimal  The  first  system  is 
carried  out  most  perfectly  in  our  avoirdupois 
weights,  in  which  sixteen  ounces  make  a 
pound  ;  but  it  is  also  freely  employed  in  our 
monetary  system,  the  sovereign  being  divided 
into  half-sovereigns,  crowns,  and  half -crowns, 
the  shilling  into  sixpences  and  three-penny 
pieces  ;  and  the  penny  into  halfpence  and 
farthings.  At  the  same  time,  the  duodeci- 
mal method  is  represented  in  our  money  by 
the  division  of  the  shilling  into  twelve  pence, 
of  which  the  third  part  is  still  in  circulation 
as  the  groat,  or  fourpenny  piece,  now  being 
withdrawn. 


32  [100] 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


Each  system  of  subdivision  has  its  own 
advantages,  and  there  must  always  exist  a 
kind  of  natural  competition  between  them. 
They  have  thus  competed  from  the  earliest 
times.  In  ancient  Italy  the  duodecimal  sys- 
tem predominated  to  the  south  of  the  Apen- 
nines, while  the  decimal  division  was  in  use 
to  the  northward.  In  Sicily  the  two  methods 
were  confused  together.  China  has  had  a 
purely  decimal  system  from  an  unknown 
epoch  in  antiquity.  In  England  duodecimal 
and  binary  divisions  have  existed  from  very 
early  times,  it  will  be  readily  allowed  that 
the  binary  system  is  most  simple  and  natural, 
involving  as  it  does  the  least  possible  factor 
above  unity.  The  duodecimal  system  also 
has  marked  advantages,  because  it  allows  of 
division  into  several  aliquot  parts,  involving 
the  factor  2  twice  over,  and  the  next  higher 
factor  3  once.  Thus  the  shilling  is  divisible 
exactly  into  two  sixpences,  three  fourpences, 
four  threepences,  and  six  twopences. 

The  decimal  system  is  far  less  simple,  and 
in  some  ways  less  convenient.  Ten  admits 
of  only  two  factors  superior  to  unity,  namely, 
2  and  5,  and  5  is  a  more  complex  prime  fac- 
tor than  appears  in  either  of  the  previous 
methods.  But  the  system  has  the  supreme 
advantage  of  exactly  falling  in  with  our  deci- 
mal system  of  numeration  and  calculation. 
Although  probably  not  the  best  method 
which  might  have  been  selected,  had  selection 
been  open  to  us,  decimal  numeration  is  firm- 
ly fixed  among  the  institutions  of  the  human 
race,  as  an  hereditary  habit,  derived  from  the 
early  practice  of  counting  on  the  fingers. 
We  have  no  choice  but  to  accept  the  inevita- 
ble, and  as  all  our  arithmetical  processes  are 
conducted  on  the  decimal  method-  there  is  an 
overwhelming  advantage,  as  education  and 
the  use  of  writing  advance,  in  making  all  our 
weights,  measures,  and  coins  comformable  to 
the  same  system. 

A  perfectly  and  purely  decimal  system,  in- 
deed, would  admit  only  the  decimal  multiples 
and  submultiples,  thus: — 1000,  100,  10,  I, 
O'l,  O'oi,  o'ooi.  But  it  is  so  troublesome 
to  have  to  count  out  as  many  as  ten  coins, 
before  coming  to  the  next  higher  unit,  that 
the  rigor  of  the  decimal  divisions  has  always 
been  relaxed.  In  the  French  system,  the 
half  and  the  double  of  each  multiple  are  al- 
lowed to  be  represented  by  intermediate 
coins,  the  series  being  I,  2,  5,  10,  20,  50, 
100,  200.  500,  etc.  The  American  coinage 
is  less  simple  and  symmetrical,  since  it  ad- 
mits the  half  and  quarter  eagle,  half  and 
quarter  dollar,  the  ten  and  five- cent  pieces, 
and  also  a  three-cent  piece.  I  am  inclined 
to  prefer  the  French  method,  and  to  think 
that  the  American  mint  has  issued  too  many 
denominations  of  coins. 

FINAL    SELECTION    OF    THE   UNIT    OF  INTER- 
NATIONAL  MONEY. 

I  wilt  conclude  this  chapter  by  some  re- 
marks on  the  reasons  which  should  guide  us 


in  selecting  the  monetary  unit  to  be  finally 
established  as  the  basis  of  a  future  universal 
money. 

I  attribute  very  little  weight  to  arguments 
concerning  the  absolute  amount  of  the  rival 
units.  It  is  said  that  as  the  wealth  of  nations 
increases,  and  the  value  of  gold  at  the  same 
time  sinks,  we  need  a  large  unit.  The.  pound 
is  recommended  on  this  ground  as  clearly 
superior  to  the  franc.  If  we  count  in  francs 
our  figures  will  be  twenty-five  times  as  large 
as  in  pounds  sterling.  It  seems  to  be  for- 
gotten that  the  same  unit  can  never  suit  the 
extremely  different  sums  which  we  have  to 
express,  so  that  we  must  use  multiples  or 
submultiples  of  the  actual  unit.  Just  as  we 
use  inches,  feet,  yards,  furlongs,  miles,  or 
diameters  of  the  earth's  orbit,  according  to 
the  magnitudes  to  be  measured,  so  we  vary 
the  unit  with  money.  If  we  are  discussing 
a  workman's  weekly  wages,  we  count  in  shil- 
lings ;  if  we  speak  of  a  clerk's  yearly  salary, 
we  speak  of  pounds  ;  if  the  fortune  of  a  mer- 
chant or  banker  is  in  question,  we  take  notice- 
only  of  thousands  of  pounds  ;  in  matters  re- 
lating to  the  revenue  of  the  kingdom  or  the 
national  debt,  we  give  our  exclusive  attention 
to  millions  of  pounds.  The  Portuguese  unit 
of  account,  called  the  rei,  is  worth  only  about 
the  nineteenth  part  of  an  English  penny,  and 
is  probably  the  smallest  unit  in  the  world. 
Practically,  however,  the  milreis,  or  thousand 
reis,  worth  53  i-3</. ,  becomes  the  unit.  In 
the  same  way  Indian  merchants  speak  of  lacs 
and  crores  of  rupees.  The  French  estimate 
their  national  debt  in  milliards  of  francs. 
No  doubt  it  is  puzzling  to  Englishmen  to  in- 
terpret  exactly  the  meaning  of  a  milliard  of 
francs,  but,  tC  these  accustomed  to  count  in 
francs  it  is  no  more  difficult  than  a  million  of 
pounds.  Exactly  the  same  considerations 
apply  to  units  of  weight;  thus,  though  the 
French  use  so  small  an  ultimate  unit  as  one 
gram,  or  15 '43  grains,  yet  according  to  the 
magnitudes  of  the  objects  to  be  weighed, 
they  use  smaller  or  larger  units,  centigrams 
or  milligrams  on  the  one  side,  or  decagrams 
and  kilograms  on  the  other.  The  absolute 
amount  then  of  the  ultimate  unit  seems  to  me 
to  be  entirely  a  matter  of  indifference  in  this 
point  of  view. 

As   regards   the   subdivision   of    the   unit 
there  are  considerations  of  more  importance. 
The  subdivision  ought  of  course  to  be  deci- 
mal, and  it  ought  to  be  so  contrived  that  the 
lowest   submultiple  shall  correspond  to  the 
smallest  sum  which  is  thought  worthy  of  be- 
ing   recorded    in     mercantile    transactions. 
Now  the  franc  is  divided  into  100  centimes, 
so  that  the  centime  has  a  value  of  less  than 
the  tenth  of  a  penny.     Though  bronze  pieces 
j  of  one  and  two  centimes  were  coined  to  the 
i  amount  of  about  five  per  cent,  of  the  whole 
I  bronze  currency,  it  is  found  that  they  hardly 
I  circulate.     Even   if  they  were   used   in    the 
smallest  retail  transactions  at  bakers'  shops, 
they  would  not  be  entered  in  account  books. 


MONF.Y   AND  TIIF.   Ml-.i  IIAMSM   ul    EXCHANGE. 


[101J 


Thus  the   lowest    entry  which    a    French   ac- 
countant   ma&es    is    five    centimes,    and    the 
next  lowest  ten    centimes,  corresponding   to 
our   penny.      A   needless  complexity  i  •.  thus 
introduced  into  small  accounts.      It  is  indeed 
so  inconvenient  to  have  to  call  the  smallest 
coin  in  general    use  cinq  centimes  that  it  is 
still  common  to  speak  of  it  as  a  sou,  in  spite 
of  the  ninety  years  during  which  the  decimal 
system  has  existed  in  France.     The  Portu- 
guese rci  is  so  small  a  unit  that  it  is  not  rep-  j 
resented  by  any  coin  at  all.     It  nevertheless  | 
has   a   place   in     Portuguese   meicantile   ac-  j 
counts,  and  thus  needlessly  adds  a  figure  to 
all  pecuniary  statements. 

In  England  the  smallest  coin  in  actual  use 
is  the  farthing,  but  in  accounts  little  notice 
is  taken  of  farthings  or  halfpennies,  so  that 
the  penny  is  the  lowest  money  of  account. 
The  post-office,  in  the  Regulations  of  the  sav- 
ings bank  business,  refuses  to  recognize  any 
coin  less  than  the  penny.  But  the  penny  is 
inconveniently  related  to  the  pound,  the 
hundredth  part  of  which  is  2 '4^.,  and  the 
thousandth  part  about  a  farthing.  Thus  the 
decimal  system  applied  to  our  pound  would 
oblige  us  to  record  as  the  lowest  money  of 
account  an  inconveniently  small  coin,  namely, 
the  mil.  In  this  respect,  indeed,  the  pound 
and  mill  scheme  is  superior  to  the  franc  and 
centime  system.  Thus  I2s.  bd.  may  be  ex- 
pressed as  625  mils  ;  but  in  French  money 
(at  twenty- five  francs  to  the  pound)  it  would 
become  15  '625.  Taking  the  ten-franc  piece 
as  the  principal  unit,  it  would  become  I  "56 
units,  or  156  metrical  pennies.  In  many 
cases  it  would  require  less  figures  to  express 
a  sum  in  pennies  than  in  mils  or  centimes. 

The  American  system  is  unexceptionable 
in  this  respect.  The  dollar  is  divided  into  one 
hundred  cents,  each  of  which  has  the  value 
of  about  one  halfpenny.  Although  half  cents 
have  been  coined,  and  may  be  used  in  some 
trifling  purchases,  they  need  never  be  entered 
in  ordinary  accounts.  The  cent  thus  seems 
to  me  to  correspond  to  the  smallest  sum 
which  need  be  treated  in  accounts,  so  that 
money  statements  are  reduced  to  the  greatest 
possible  simplicity.  The  question  may  well 
be  asked  whether  the  lowest  coin  actually  re- 
corded is  not  truly  the  unit,  of  which  all 
other  coins  are  multiples.  Perhaps  the  best 
answer  would  be  to  say  that  the  unit  is  indif- 
ferently the  cent,  or  the  dollar,  or  the  eagle. 
In  English  money  it  matters  not  whether 
we  regard  the  pound,  or  its  twentieth  part, 
or  its  two  hundred  and  fortieth  part,  as  the 
unit.  The  absolute  amount  of  the  unit,  I 
repeat,  is  totally  a  matter  of  indifference,  and 
the  only  point  we  have  to  consider  is  whether 
it,  or  any  decimal  part  of  it,  corresponds 
to  the  smallest  sum  of  which  we  need  take 
account.  In  this  respect  the  dollar  is  the 
best  existing  unit;  but  it  might  admit  of  dis- 
cussion whether  the  double  dollar,  or  ten- 
franc  piece  of  gold,  equal  to  eight  shillings, 
or  one  hundred  pence,  would  not  be  better. 


If  the  wealth  of  nations  continues  to  grow,, 
and  the  value  of  gold  to  fall,  even  the  cent 
will  be  loo  small  a  coin  to  appear  convenient- 
ly in  accounts,  and  the  penny  will  be  a  bet- 
ter lowest  unit.  In  this  case  the  hundred 
pennies,  or  the  ten-franc  piece,  would  be- 
come the  best  unit.  The  choice  thus  seems- 
to  me  to  lie  between  the  five-franc  and  the 
ten-franc  piece  in  gold  as  the  ultimate  unit  of 
international  money.  In  favor  of  the  ten- 
franc  piece  it  may  be  added,  that  it  would 
make  a  convenient  gold  coin  of  the  smallest 
size  which  it  would  be  well  to  issue.  The 
goKl  dollar  and  five-franc  piece  are  too* 
small,  and  suffer  great  abrasion. 


CHAPTER    XV. 

THE    MECHANISM    OF    EXCHANGE. 

Having  now  sufficiently  discussed  the  sub- 
ject of  metallic  money,  we  pass  on  to  con- 
sider the  devices  which  naturally  develop 
themselves  in  a  highly  organized  commercial 
nation,  for  the  purpose  of  economizing  the 
precious  metals,  or  even  avoiding  the  use  of 
coins  altogether.  No  sooner  have  a  people 
fully  experienced  the  usefulness  of  a  good 
system  of  money,  than  they  begin  to  discover 
that  they  can  dispense  with  it  as  a  medium 
of  exchange,  and  return  to  a  method  of  traffic 
closely  resembling  barter.  With  barter  they 
begin  and  with  barter  they  end;  but  the  sec- 
ond form  of  barter,  as  we  shall  see,  is  very 
different  from  the  fi:st.  Purchases  and  sales 
continue  to  be  made  in  terms  of  gold  and  sil- 
ver coin,  but  equivalent  quantities  of  goods 
thus  estimated  are  made  to  pay  for  each 
other.  If  ownership  in  gold  or  silver  inter- 
venes at  all,  it  is  in  the  shape  of  -warrants  or  * 
representative  documents,  with  which  gold  can 
be  procured,  if  desired,  but  which  are  seldom 
used  to  procure  it. 

At  the  outset  we  found  that  money  per- 
formed at  least  two,  and  probably  four  dis- 
tinct functions  (Chapter  III.);  and,  in  a  sim- 
ple state  of  industry,  it  is  convenient  that  the 
same  metallic  substance  should  fulfill  all 
these  functions  concurrently.  But  it  does 
not  follow  that  this  union  of  functions  is  the 
best  possible  arrangement  under  all  condi- 
tions. We  shall  find  that  gold  or  silver  al- 
ways continues  to  be  the  common  denomi- 
nator of  value,  but  that  these  metals  cease  to 
a  great  extent  to  be  the  actual  medium  of 
exchange  which  is  passed  about  between 
buyer  and  seller.  In  a  later  part  of  the  book 
(Chapter  XXV.)  I  shall  further  show  that 
money  may  with  great  advantage  be  replaced 
in  its  function  as  a  standard  of  value  for  long 
periods  of  time  by  a  Tabular  Standard. 

PROGRESSIVE    DEVELOPMENT   OF   THE 
METHODS   OF    EXCHANGE. 

Beginning  with  the  primitive  method  of 
barter,  a  series  of  steps  have  been  made  to- 


•4  [102]  MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


ward  a.  perfect  and  world-wide  system  of~in- 
terchange  of  commodities,  with  the  least 
possible  use  of  the  precious  metals.  We 
may  classify  the  devices  employed  for  avoid- 
ing the  use  of  metallic  money  under  five  dif- 
ferent heads,  as  follows: 

1.  Replacement   of    standard    money   by 
representative  money. 

2.  Intervention  of  book  credit. 

3.  The  check  and  clearing  system. 

4.  Use  of  foreign  bills  of  exchange. 

5.  International  clearing  system. 

REPRESENTATIVE   MONEY. 

Metallic  money,  as  we  have  seen,  im- 
mensely facilitates  and,  so  to  speak,  lubri- 
cates the  operation  of  exchange.  But  nations 
employing  gold  and  silver  money  have  usu- 
ally discovered,  in  the  course  of  time,  that 
tokens  of  small  metallic  value,  or  even  pieces 
of  leather  and  paper  of  nominal  value,  might 
be  passed  from  hand  to  hand  as  signs  of  the 
ownership  of  coins.  That  which  replaces 
gold,  or  silver,  or  copper  money,  is  at  first  of 
a  purely  representative  character.  But,  when 
a  community  has  become  thoroughly  habitu- 
ated to  the  circulation  of  a  currency  of  this 
character,  it  is  often  found  possible  to  remove 
the  basis  of  valuable  metal >  which  it  is  sup- 
posed to  represent,  and  yet  to  maintain  the 
valueless  bits  of  leather  or  paper  in  circulation 
as  before.  Thus  arises  the  abnormal  phe- 
nomenon known  as  an  inconvertible  puper 
money.  Such  a  currency  is,  however,  never 
accepted  beyond  the  frontiers  of  the  state 
recognizing  it. 

Merchants  conducting  large  international 
transactions  soon  found  out  that  great  loss  of 
interest  and  risk  of  loss  of  the  whole  mon«y 
would  arise,  if  they  were  to  trade  with  actual 
specie.  Hence  they  introduced  the  use,  many 
centuries  since,  of  bills  of  exchange,  which  are 
signs  or  certificates  of  debt,  passed  from  hand 
to  hand  almost  like  representative  money,  and 
often  accomplishing  many  acts  of  exchange 
by  a  single  transfer  of  specie. 

CHECK  AND   CLEARING  SYSTEM. 

There  is  yet  a  more  potent  way  of  avoiding 
the  actual  use  of  a  medium  of  exchange, 
without  encountering  any  of  the  inconven- 
iences of  barter.  Those  who  frequently 
traded  with  each  other,  both  buying  and  sell- 
ing, found  that  it  was  absurd  to  pay  a  sum  of 
money  for  what  was  bought,  and  then  receive 
it  back  for  what  was  sold.  It  was  sufficient 
to  estimate  in  terms  of  money  the  values  of 
the  articles  exchanged,  and  then  pay  the 
difference,  if  any,  in  actual  cash.  The  prac- 
tice having  grown  up  of  depositing  the  metal- 
lic money  not  immediately  wanted  with  gold- 
smiths or  bankers,  for  safe  custody,  it  was 
gradually  discovered  than  an  order  to  pay 
money  would  serve  instead  of  the  money  ; 
and  that,  if  two  persons  trade  with  the  same 
banker,  they  need  not  in  their  mutual  trans- 
actions handle  the  money  at  all.  A  transfer 


in  the  books  of  their  common  bankers  will 
effect  the  payment  of  any  balance  of  debt. 
Bankers  can  in  like  manner  arrange  their 
mutual  accounts,  and  in  this  way  there  has 
been  gradually  developed  in  this  country  and 
in  America  a  vast  system,  which  I  propose  to 
denominate  the  Check  and  Clearing  Svslem, 
whereby  all  the  larger  internal  transactions  of 
the  people  are  arranged  by  a  mere  settlement 
of  accounts. 

In  this  system  London  naturally  becomes 
the  monetary  center  of  the  United  Kingdom  ; 
but  there  is  a  further  tendency  to  make  Lon- 
don the  banking  center  of  the  world  as 
regards  all  large  and  international  transac- 
tions. It  is  found  to  be  advantageous  to 
deposit  money  in  London,  or  to  obtain  credit 
and  make  bills  payable  there,  rather  than 
elsewhere.  By  such  a  concentration  of  bank- 
ing operations,  London  tends  to  become  the 
seat  of  a  world-wide  Clearing  House.  Such 
are  the  principal  steps  in  the  development  of 
the  mechanism  of  exchange,  and  we  proceed 
to  consider  them  in  detail. 


NCH AFTER  XVI. 

REPRESENTATIVE    MONEY. 

Although  we  now  distinguish  money  ac- 
cording as  it  is  metallic  or  paper  money, 
because  paper  has  in  recent  times  been  uni- 
versally adopted  as  the  material  for  repre- 
sentative money,  yet  it  is  well  to  remember 
that  various  other  substances  have  been  used 
for  the  purpose.  We  may  pass,  in  fact,  by 
gradual  steps  from  the  perfect  standard  coins, 
whose  nominal  value  is  coincident  with  their 
metallic  value,  to  worthless  bits  of  paper, 
which  are  yet  allowed  to  stand  for  thousands, 
or  even  millions  of  pounds  sterling. 

Token  money,  which  we  considered  in 
Chapter  VI Ii.,  is  in  some  degree  repre- 
sentative money,  because  it  derives  its 
value,  not  so  much  from  the  metal  it  contains 
as  from  the  standard  coins  for  which  it  can  be 
exchanged.  There  is  no  need  that  a  promise 
should  be  always  expressed  by  ink  and  paper. 
It  may  be  still  more  durably  recorded  by  a 
die  upon  a  piece  of  metal.  Accordingly, 
while  the  monarchs  of  England  down  to  the 
end  of  Elizabeth's  reign  refused  to  debase 
their  currency,  as  the  notion  seems  to  have 
been,  by  issuing  such  a  poor  metal  as  copper, 
the  tradesmen  supplied  the  want  of  pence  by 
issuing  tokens.  These  pieces  were  in  the 
earlier  centuries  composed  of  lead,  or  latten, 
a  kind  of  brass,  or  sometimes,  it  is  believed, 
of  leather.  During  the  last  century,  again, 
they  were  issued  in  large  quantities,  chiefly  in 
copper,  and  often  bore  an  express  statement 
that  they  served  as  promissory  notes.  Thus 
a  well-executed  piece,  issued  at  Southampton 
in  1791,  bears  the  inscription,  "Halfpenny 
Promissory,  payable  at  the  Office  of  W.  Tay- 
lor, R.  V.  Moody  &  Co."  A  token  struck  by 


MONEY    AND   Till-:    MECHANISM 


EXCHANGE. 


IK.-]  .-,5 


the  Flint  lead  works  in  1813,  states  the  prom- 
ise in  different  terms,  thus:  "One  Penny 
Token,  One  Pound  Note  for  240  Tokens." 
The  variety  of  such  promissory  coins  issued 
at  one  time  or  other  is  very  great,  and  their 
study  forms  an  important  branch  of  numis- 
matic science,  as  will  be  learned  by  looking 
into  such  a  work  as  "Akerman's  London 
Tradesmen's  Tokens."  In  quite  recent  years 


h  s  ory  of  the  leather  money  which  long  had 
currency  in  Russia. 

It  is  impossible  to  ascertain  what  was  the 
character  of  the  leather  money  which,  accord- 
ing to  an  obscure  tradition,  was  in  use  at 
Rome  before  the  time  of  Numa.  There  is 
no  doubt  that  the  Carthaginians  had  a  repre- 
sentative leather  currency,  for  /Eschines  the 
Socratic  tells  us  that  they  used  small  pieces  of 


small  money  was  found  to  be  scarce  in  New  (  leather    wrapped    round    cores    of  unknown 

material,  and  then  sealed  up.  Neighboring 
nations  refused  to  receive  these  curious 
pieces  of  currency,  whence  we  may  safely 
infer  that  their  value  was  nominal. 

It  is,  however,  in  China  that  the  use  of  pa- 
per money  was  most  fully  developed  in  early 


South  Wales,  and  some  tradesmen  issued 
copper  or  bronze  tokens  which  circulated 
until  the  year  1870,  when  their  further  use 
was  prohibited. 

The  ancients  were  well  acquainted  with 
the  difference  between  a  standard  and  a 
token  currency.  The  iron  money  of  the 


Lacedaemonians  was  probably  standard  legal 
tender,  for  it  is  described  as  being  heavy  and 
bulky,  and  yet  of  small  value.  The  iron 
money  of  the  Byzantines,  on  the  contrary, 
was  token  representative  money.  We  shall' 
find  in  the  following  section  that  pieces  of 
money  of  the  same  nature  as  bank-notes 
were  also  employed  by  several  ancient  na- 
tions. 

EARLY    HISTORY    OF    REPRESENTATIVE 
MONEY. 

Ancient  nations  were  unacquainted  with 
the  use  of  paper  money,  simply  because  they 
had  no  paper.  But  it  would  be  a  mistake  to 
suppose  that  they  did  not  employ  represent- 
ative money  exactly  on  the  same  principles 
as  we  use  bank-notes.  Some  few  particulars 
on  the  subject  have  long  been  known,  but  a 
recent  article  by  M.  Bernardakis  in  the  Jour- 
nal des  Economistes  (vol.  xxxiii.  pp.  353-370) 
has  added  much  to  our  knowledge,  and  made 
it  quite  clear  that  the  ancients  were  more 
acute  in  matters  of  currency  than  we  have 
given  them  credit  for. 

One  of  the  very  earliest  mediums  of 
exchange,  as  we  have  seen,  consisted  of 
the  skins  of  animals.  The  earliei-t  form 
of  representative  money  consisted  of  small 
pieces  of  leather,  usually  marked  with  an 
official  seal.  It  is  a  very  reasonable  sug- 
gestion made  by  Storch,  Bernardakis,  and 
other  writers,  that  when  skins  and  furs  be- 
gan to  be  found  an  inconveniently  bulky 
kind  of  money,  small  pieces  were  clipped  off, 
and  handed  over  as  tokens  of  possession. 
By  fitting  into  the  place  from  which  they 
were  cut  they  would  prove  ownership,  some- 
thing in  the  same  way  that  notched  sticks, 
or  tallies,  were  for  many  centuries  used  to 
record  loans  of  money  to  the  English 
Exchequer.  We  know  by  experience  in  the 
case  of  paper  money,  that  if  the  people  had 
become  thoroughly  accustomed  to  the  circu- 
lation of  these  small  leather  tallies,  they 
would  in  time  forget  their  representative 
character,  and  continue  to  circulate  them, 
when  the  government,  or  other  holders  of 
the  skins  themselves,  had  made  away  with 
the  actual  property.  Such  is  no  doubt  the 


times.  More  than  a  century  before  the 
Christian  era,  an  emperor  of  China  raised 
funds  to  prosecute  his  wars  in  a  way  which 
shows  that  the  use  of  leather  tokens  was  fa' 
miliar  to  the  people.  The  tokens  having 
been  made  of  the  skins  of  white  deer,  he 
collected  together  into  a  park  all  deer  of  this 
color  which  he  could  find,  and  prohibited 
his  subjects  from  possessing  any  animals  of 
the  same  kind.  Having  thus  obtained  a 
monopoly  of  the  material,  reminding  one  of 
the  monopoly  of  the  Bank  of  England  in 
water-marked  paper,  he  issued  pieces  of  the 
white  leather  as  money  at  a  high  rate. 

In  the  middle  of  the  thirteenth  century, 
Marco  Polo  found  a  paper  money  in  circula- 
tion in  China,  composed  of  the  inner  bark  of 
a  tree  beaten  up  and  made  into  paper,  square 
pieces  of  which  were  signed  and  sealed  with 


great  formality, 
ous  values,    and 


These  notes  were  of  vari- 
were     legal   tender,  death 


being  the  penalty  imposed  upon  those  who 
refused  to  receive  them.  Counterfeiters 
likewise  incurred  the  same  penalty.  Another 
traveler,  who  visited  China  in  the  fourteenth 
century,  gives  a  very  similar  account  of  the 
paper  money  then  circulating,  and  adds  that, 
when  worn  or  torn,  it  could  be  exchanged 
for  new  notes  without  charge.  It  is  need- 
less to  follow  out  the  long  and  doubtful  his- 
tory of  the  subject  in  later  times,  many  par- 
ticulars of  which  will  be  found  in  the  article 
of  M.  Bernardakis,  or  that  of  M.  Courcelle- 
Seneuil  on  Papier  Monnaie  in  the  "  Dic- 
tionnaire  de  1'Economie  Politique."  It  may 
suffice  to  say  that  the  history  resembles  that 
of  most  inconvertible  currencies.  The  quan- 
tity of  paper  afloat  increased  so  much  under 
the  Mongol  dynasty  as  to  cause  great  evils, 
and  the  Ming  dynasty,  continuing  the  issues, 
went  so  far  as  to  prohibit  the  use  of  gold  or 
silver  money.  The  value  of  the  paper  fell  so 
low,  it  is  said,  that  one  metallic  cash  was 
worth  a  thousand  paper  cash,  reminding  us 
of  the  present  state  of  the  paper  currency  in 
San  Domingo.  The  resmlt  was  a  collapse 
and  reaction  in  the  fifteenth  centnry. 

Among  other  Asiatic  nations,  the  Tartars 
and  the  Persians  also  understood  the  use  of 
paper  money,  and  Sir  John  Maundeville, 
who  traveled  in  Tartary  in  the  fourteenth 


66  [104]  MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


century,  gives  the  following  account  of  the  j 
advantages  which  the  Great  Chan  enjoyed  in  | 
consequence.  "  This  Emperour  may  dis- 
penden  als  moche  as  he  wile,  withouten  esty- 
macioun.  For  he  despendethe  not,  ne 
makethe  no  money,  but  of  Lether  emprented, 
or  of  Papyre.  And  of  that  money,  is  som 
of  gretter  prys,  and  som  of  lesse  prys,  af  tre 
the  dyversitee  of  his  Statutes.  And  whan 
that  Money  hathe  ronne  so  longe  that  it  be- 
gynnethe  to  waste,  than  men  beren  it  to  the 
Emperoure's  Tresorye  ;  and  than  thei  taken 
newe  money  for  the  olde.  And  that  Money 
gothe  thorghe  out  all  the  contree,  and 
thorghe  out  alle  his  Provynces.  For  there 
and  beyonde  hem,  thei  make  no  Money 
nouther  of  Gold  nor  of  Sylver.  And  there- 
fore he  may  despende  ynow,  and  outrage- 
ously." Not  a  few  great  emperors  and 
kings,  and  even  republics,  have  imitated  the 
Great  Chan,  and  have  spent  their  paper 
money,  "ynow  and  outrageously." 

REASONS  FOR  THE  USE  OF  REPRESENTATIVE 
MONEY. 

It  is  well  to  analyse  and  state  exactly  the 
reasons  which  may  be  given  for  the  introduc- 
tion of  pieces  of  representative  money.  Sev- 
eral motives  may  be  detected,  and  they  have 
been  of  different  weight  in  different  cases. 
The  origin  of  the  European  system  of  bank- 
notes is  to  be  found  in  the  deposit  banks 
established  in  Italy  from  four  to  seven  cen- 
turies ago.  In  those  days  the  circulating 
medium  consisted  of  a  mixture  of  coins  of 
many  denominations,  variously  clipped  or 
depreciated.  In  receiving  money,  the  mer- 
chant had  to  weigh  and  estimate  the  fineness 
of  each  coin,  and  much  trouble,  loss  of  time, 
and  risk  of  fraud  thus  arose.  It  became, 
therefore,  the  custom  in  the  mercantile  re- 
publics of  Italy  to  deposit  such  money  in  a 
bank,  where  its  value  was  accurately  estima- 
ted, once  for  all,  and  placed  to  the  credit  ot 
the  depositor. 

The  banks  of  Amsterdam  and  Hamburg 
were  subsequently  established  on  a  similar 
system,  and  a  full  account  of  them  will  be 
found  in  Adam  Smith's  ' '  Wealth  of  Nations," 
Book  IV.,  Chapter  III.,  and  in  Hewitt's 
"Treatise  upon  Money"  (p.  121).  The 
money  placed  to  the  credit  of  individuals  in 
these  banks  was  called  bank-money,  and  com- 
manded an  agio  or  premium  corresponding 
to  the  average  depreciation  of  the  coins.  Pay- 
ments were  made  by  the  merchants  attending 
at  the  bank  at  a  particular  hour,  and  order- 
ing transfers  to  be  made  in  the  bank  books. 
The  money  paid  was  thus  alwavs  of  full 
value,  and  all  trouble  in  counting  and  valu- 
ing it  was  avoided.  The  regulations  of  these 
banks  were,  however,  in  many  respects  com- 
plicated, and  it  is  difficult  to  understand  their 
purpose. 

INCONVENIENCE   OF    METALLIC   MONEY. 

Closely  involved  with  the  previous  motive 
for  the  use  of  representative  money  is  that  of 


avoiding  the  trouble  and  risk  of  handling 
large  amounts  of  the  precious  metals.  In 
order  to  keep  large  sums  of  metallic  money 
in  safety  a  person  must  have  strongholds 
and  watchmen.  The  origin  of  banking  in 
England  has  never  been  sufficiently  inves- 
tigated, but,  so  far  as  we  know,  it  arose  for 
the  purpose  of  safe  custody.  While  public 
and  well-regulated  deposit  banks  had  existed 
for  centuries  in  Italy,  the  only  trace  of  such 
an  institution  in  England  was  found  in  the 
mint  in  the  Tower  of  London,  whither  mer- 
chants were  accustomed  to  send  their  specie 
for  safe  keeping.  Unfortunately,  in  1640 
King  Charles  I.  appropriated  as  a  loan  ^200,  - 
ooo  thus  deposited,  and  the  merchants,  no 
longer  trusting  the  government,  and  finding 
it  dangerous  to  keep  large  sums  of  money  in 
their  own  houses  during  the  troubled  times 
which  followed,  resorted  to  the  practice  of 
depositing  their  money  with  goldsmiths,  who 
probably  had  vaults  and  guards  suitable  for 
the  purpose. 

As  acknowledgments  of  the  possession  of 
such  sums  of  money,  the  goldsmith  gave  re- 
ceipts, and  at  first  these  documents  were 
special  promises,  like  dock  warrants.  The 
practice  arose  of  transferring  possession  bjr 
delivery  of  these  receipts,  or  "goldsmiths' 
notes,"  as  they  were  called.  Such  notes  are 
frequently  referred  to  in  Acts  of  Parliament, 
and  even  as  late  as  1746  most  of  the  London 
bankers  continued  to  be  members  of  the 
Goldsmiths'  Company.  It  is  plain  from  the 
manner  in  which  these  notes  were  mentioned 
in  some  statutes  that  they  had  become  gen- 
eral and  not  special  promises — mere  engr  Ce- 
ments to  deliver  a  sum  of  money  on  demand, 
without  conditions  as  to  keeping  a  reserve  for 
the  purpose. 

THE   WEIGHT    OF    CURRENCY. 

Even  the  weight  of  metallic  money  would 
be  a  sufficient  reason  for  the  use  of  repre- 
sentative documents  in  large  transactions. 
In  proportion  as  the  legal  tender  is  more 
bulky  and  inconvenient  to  carry  about,  is  this 
motive  more  powerful.  Thus,  when  the  state 
of  Virginia  employed  tobacco  as  the  medium 
of  exchange  in  the  eighteenth  century,  the 
tobacco  was  placed  in  stores,  and  receipts  on 
paper  were  handed  about.  Paper  money  was 
issued  in  Russia  under  Catherine  II.  in  1768, 
on  the  ground  that  the  copper  money,  then 
forming  the  legal  tender,  was  inconvenient. 
So  much  were  these  assignats,  or  notes,  pre- 
ferred, that  they  at  first  circulated  at  a  pre- 
mium of  one-fourth  per  cent. 

In  the  present  state  of  commerce,  even  gold 
money  would  be  far  too  heavy  to  form  a  con- 
venient medium  for  making  large  payments. 
M.  Chevalier  states  that  it  would  require 
forty  men  to  carry  the  gold  equal  in  value  to 
the  Regent  Diamond.  The  average  daily 
transactions  in  the  London  Bankers'  Clearing 
House  amount  to  about  twenty  millions  of 
pounds  sterling,  which  if  paid  in  gold  coin 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE, 


[lOoj 


would  weigh  about  157  tons,  and  would  re- 
quire nearly  eighty  horses  for  conveyance.  If 
paid  in  silver  the  weight  would  be  increased 
to  more  than  2500  tons.  For  the  conveyance 
and  custody  of  very  moderate  sums  in  coin  or 
bullion,  individuals,  or  even  large  banks,  re- 
sort to  the  aid  of  the  Bank  of  England,  whose 
officials  are  experienced  in  the  matter,  and 
have  all  facilities. 

I  find  that  a  Bank  of  England  note  weighs 
about  2O}4  grains  (I'/j  grams),  whereas  a 
single  sovereign  weighs  about  123  grains, 
and  the  note  may  represent  five,  ten,  fifty,  a 
thousand,  or  ten  thousand  such  sovereigns 
with  slight  differences  in  the  printing.  If 
we  were  obliged  to  handle  a  medium  of  ex- 
change actually  embodying  value,  it  woul  I, 
ere  now,  have  been  necessary  to  employ  pre- 
cious stones,  or  some  metal  much  more  rare 
and  precious  than  gold.  But  the  use  of 
representative  documents  is  becoming  so 
general  in  the  most  advanced  commercial 
countries,  that  the  portability  of  metallic 
money  is  a  question  of  very  minor  importance. 
Gold  already  acts  in  England  only  as  change 
for  notes,  and  the  question  will  arise  whether 
it  will  long  be  needed  even  for  that  purpose. 

SAVING  OF    INTEREST. 

A  further  and  very  potent  motive  for  em- 
ploying representative  tokens  and  notes,  con- 
sists in  the  saving  of  interest  and  capital, 
which  is  effected  by  substituting  a  compara- 
tively valueless  material  in  place  of  costly  gold 
and  silver.  Whenever  a  nation  is  in  great 
straits  for  want  of  revenue,  there  is  a  great 
temptation  to  treat  the  metallic  currency  as  a 
treasure  t<5  be  temporarily  borrowed  for  the 
necessities  of  the  state.  The  ancient  Greeks 
understood  this  as  well  as  the  modern  Eng- 
lish, Italians,  or  Americans.  Diognysius,  on 
this  ground,  obliged  the  Syracusans  to  accept 
tin  tokens  in  place  of  silver  coins,  worth  four 
times  as  much  in  metallic  value.  In  the  book 
on  Economics,  attributed  to  Aristotle,  we  are 
told  that  Timotheus  the  Athenian  persuaded 
the  soldiers  and  merchants  to  receive  copper 
money  in  place  of  silver,  promising  to  ex- 
change it  for  silver  coins  at  the  close  of  the 
war.  The  Clazomenians  rmde  a  similar  issue 
of  token  money  avowedly  for  the  sake  of  the 
interest  thereby  saved.  Being  unable  to  pay 
twenty  talents  due  to  some  mercenary  troops, 
they  were  under  the  necessity  of  paying  four 
talents  a  year  as  interest.  They  fell  upon  the 
device  of  coining  iron  tokens  to  the  nominal 
amount  of  twenty  talents,  which  they  obliged 
the  citizens  to  take  in  place  of  silver  coin. 
The  silver  thus  obtained  was  used  for  the 
immediate  discharge  of  the  debt,  and  there 
was  a  spare  annual  revenue  of  four  talents, 
formerly  absorbed  in  the  payment  of  interest, 
which  now  enabled  them  in  a  few  years  to 
redeem  the  token  money.  Closely  parallel  to 
this  is  the  case  of  the  Guernsey  Market, 
which  was  built  without  apparent  cost.  Dan- 
iel le  Broc,  the  governor  of  the  island,  de- 


termined to  build  a  market  in  St.  Peters,  but 
not  having  the  necessary  iuru  s,  issued  under 
the  seal  of  the  island  four  thousand  market 
notes  for  one  pound  each,  with  which  he  paid 
the  artificers.  When  the  market  was  finished 
and  the  rents  came  in,  the  notes  were  thereby 
canceled,  and  not  an  ounce  of  gold  was  em- 
ployed in  the  matter.  There  is,  however,  no 
mystery  in  this  advantage  of  paper  money. 

Dauiel  le  Broc,  by  issuing  his  market  notes, 
drove  an  equivalent  amount  of  gold  out  of 
circulation,  and  thus  effected  a  kind  of  forced 
loan  out  of  the  metallic  currency  of  the  isl- 
and, without  paying  any  interest  for  it.  A 
similar  gain  of  interest  accrues  upon  all  paper 
notes  so  far  as  their  amount  exceeds  the  gold 
held  in  readiness  to  pay  them.  The  private 
and  joint  stock  banks  of  issue  in  England  in 
this  \\~y  enjoy  the  interest  upon  a  sum  of 
about  six  millions  and  a  half  sterling,  the 
Scotch  banks  upon  two  millions  and  three- 
quarters,  and  the  Irish  banks  upon  more  tnan 
six  millions.  The  issue  of  paper  representa- 
tive money  b  beneficial  to  all  parties,  pro- 
vided that  it  be  conducted  upon  a  sound 
method  of  regulation,  a  subject  upon  which 
the  greatest  differences  of  opinion  exist. 


'    CHAPTER  XVII. 

THE    NATURE    AND    VARIETIES     OF     PROMIS- 
SORY   NOTES. 


Before  attempting  to  come  to  any  conclu- 
sion as  to  the  best  mode  of  regulating  the 
issue  of  promissory  notes,  we  must  carefully 
analyse  the  differences  which  may  exist  be-, 
tween  one  promise  and  another.  What 
seems  at  first  sight  a  very  slight  and  subtle 
distinction,  may  be  found  to  lead  to  import- 
ant results.  He  who  issues  a  representative 
or  promissory  document,  engaging  to  give  a 
certain  quantity  of  a  defined  commodity  in 
return  for  the  document  when  presented, 
may  really  make  any  one  of  three  distinct 
engagements. 

1.  He  may  promise  to  keep  acertian  iden- 
tical   article    in    his   possession    until    it   is 
called  for. 

2.  He  may  engage   to  have  in  his  posses- 
sion a  certain  amount  of  commodity  ready  to 
meet     the  promissory  notes,  without  distin- 
guishing between  portion   and   portion   of  a 
similar  substance. 

3.  The    undertaking    may   be   merely   to 
the  effect  that  the  required  commodity  shall 
be  forthcoming  when  the  note  is  presented, 
no  covenant  being  made  as  to  the  quantity 
to  be  held  in  stock  for  the  purpose. 

SPECIFIC    DEPOSIT    WARRANT. 

The  most  satisfactory  kind  of  promissory 
document  is  the  first,  which  is  represented 
by  bills  of  lading,  pawn-tickets,  dock-war- 
rants, or  certificates  which  establish  owner* 


68  [106]  MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


ship  to  a  definite  object.  A  bill  of  lading 
entitles  the  legal  holder  of  it  to  certain  cases 
or  packages  of  goods,  described  by  marks, 
numbers,  dimensions,  or  otherwise.  The 
ship-master  signing  such  a  bill  is  obliged  to 
retain  the  identical  cases  committed  to  his 
care,  unti  he  delivers  them  up  in  return  for 
the  bill  of  lading  at  the  close  of  his  voyage. 
Dock-warrants  are  of  the  same  character, 
being  receipts  for  packages  of  goods  depos- 
ited in  the  London  or  other  dock  ware- 
houses. The  holder  of  a  dock-warrant  has  a 
prima  facie  claim  to  the  pipes  of  wine,  bales 
of  wool,  hogsheads  of  sugar,  or  other  pack- 
ages named  thereon.  Transfer  of  the  war- 
rant by  endorsement  or  otherwise,  as^re- 
'quired  by  law  and  custom,  is  accounted  a 
transfer  of  the  ownership  of  the  goods. 
The  important  point  concerning  such  prom- 
issory notes  is  that  they  cannot  possibly  be 
issued  in  excess  of  the  goods  actually  depos- 
ited, unless  by  distinct  fraud.  The  issuer 
ought  to  act  purely  as  a  warehouse  keeper, 
and  as  possession  may  be  claimed  at  any 
time  he  can  never  legally  allow  any  object 
deposited  to  go  out  of  his  safe  keeping  un- 
til it  is  delivered  back  in  exchange  for  the 
promissory  note. 

GENERAL    DEPOSIT    WARRANT. 

We  pass  to  the  case  in  which  the  issuer  of 
a  promissory  document  engages  to  keep  on 
hand  goods  exactly  equivalent  in  quantity 
and'  quality  to  what  are  specified  thereon, 
without  taking  note  of  individual  parcels. 
In  many  cases  commodities  are  so  homoge- 
neous that  there  seems  to  be  no  need  to 
^distinguish  parcel  from  parcel,  or  to  restore 
the  identical  portion  deposited.  Thus  the 
•keeper  of  a  pig-iron  store  in  Glasgow  receives 
large  quantities  of  pig-iron,  of  several 
brands,  and  issues  corresponding  warrants 
representing  ownership  therein.  As  no  dif- 
ference, however,  is  known  to  exist  between 
different  portions  of  iron  of  the  same  brand, 
it  was  the  practice  in  former  years  not  to  al- 
lot one  heap  of  pigs  to  each  warrant,  but 
simply  to  retain  a  stock  of  each  brand  equal 
in  weight  to  the  aggregate  amount  due  on 
outstanding  warrants.  More  recently  a  bet- 
ter system  has  been  introduced,  and  each 
specific  lot  of  iron  has  been  marked  and  set 
aside  to  meet  some  particular  warrant.  The 
difference  seems  to  be  slight,  but  it  is  really 
very  important,  as  opening  the  way  to  a  lax 
fulfillment  of  the  contract.  Misunderstand- 
ings occasionally  arise  upon  this  point  in 
other  trades.  For  instance,  a  cotton  mer- 
chant in  Liverpool,  a  few  years  since,  ob- 
tained a  loan  of  money  upon  the  security  of 
cotton  in  his  possession,  and  a  court  of  law 
was  subsequently  called  upon  to  decide 
whether  he  had  mortgaged  certain  individual 
bales  of  cotton,  and  undertaken  to  retain 
them  until  the  loan  was  repaid,  or  whether 
he  had  merely  engaged  to  have  in  his  hands 
an  equal  quantity  of  cotton  of  the  same 


quality.  I  have  heard  that  carrying  and 
warehousing  companies  are  sometimes  care- 
less about  distinction  of  parcel  and  parcel. 
If  they  are  continually  conveying  or  holding1 
portions  of  exactly  the  same  goods,  flour 
from  the  same  miller,  coal  from  the  same 
seam,  they  will  sometimes  deliver  out  the  re- 
quired quantity  of  the  same  sort  of  goods, 
irrespective  of  its  being  the  identical  portion 
delivered  to  them  for  conveyance  or  safe 
custody. 

DIFFERENCE     BETWEEN     A     SPECIAL    AND     A 
GENERAL    PROMISE. 

The  great  importance  of  the  distinctions 
pointed  out  in  the  last  section  will  be  easily 
apparent.  He  who  has  made  a  special  prom- 
ise to  give  definite  parcels  of  goods  in  re- 
turn for  particular  individual  papers,  cannot 
issue  any  such  promissory  papers  without 
holding  corresponding  goods.  If  he  does  so, 
he  will  be  continually  liable  to  be  convicted 
of  fraud  or  default  by  the  presentation  of  a 
particular  document.  If  the  promises  made 
by  him,  however,  are  only  general  ones,  any 
promissory  document  can  be  met  by  any  por- 
tion of  commodity  of  the  proper  qualit  -,  and 
it  will  be  necessary  to  present  most  or  all  of 
the  documents  in  order  to  disclose  default. 
The  way  is  thus  opened  for  the  speculative 
issue  of  promissory  notes.  The  receiver  of 
deposits,  finding  that  a  large  portion  of  the  de- 
posited commodity  always  remains  on  hand, 
may  proceed  to  use  it  in  trade,  only  keeping 
so  much  as  may  meet  current  demands.  So 
long  as  he  does  fulfill  promises,  no  harm 
seems  to  be  done  ;  but  experience  proves  that 
there  will  always  be  a  certain  proportion  of 
persons  who,  in  such  circumstances,  will  not 
act  so  discreetly  as  to  be  in  a  position  to  re- 
deem all  their  engagements. 

Moreover,  it  now  becomes  possible  to 
create  a  fictitious  supply  of  a  commodity; 
that  is,  to  make  people  believe  that  a  supply 
exists  which  does  not  exist.  The  possessor 
of  a  promissory  note  or  warrant  regards  the 
document  as  equivalent  'to  the  commodity 
named  thereon.  It  is  only  necessary  then  to 
print  off,  fill  up,  and  sign  an  additional  num- 
ber of  such  notes  in  order  to  have  a  corre- 
sponding supply  of  commodity  to  sell.  It  is 
true  that  the  issue  of  promises  involves  their 
"ulfillment  at  a  future  day  ;  but  the  future  is 
unknown,  and  the  issuer  may  believe  that 
:>efor,e  the  fulfillment  is  likely  to  be  demanded 
he  price  of  the  commodity  will  have  fallen. 
Thus,  if  pig-iron  warrants  could  be  issued  in 
unlimited  quantities  (irrespective  of  the  stocks 
actually  in  the  stores  at  Glasgow),  an  unscru  - 
Dulous  band  of  speculators  might  perhaps  make 
large  profits  by  selling  great  quantities  of 
iron  for  future  delivery.  After  suddenly  and 
excessively  depressing  the  price  of  pig-iron 
they  might  succeed  in  gradually  buying  up 
enough  at  lower  prices  to  meet  the  warrants 
when  presented.  This  kind  of  ' 4  bear  "  oper- 


MONEY  AM)  TllK  MECHANISM  OF  EXCHANGE. 


J107J 


ations  has  certainly  been  successful  in  other 
markets. 

About  ten  years  ago  it  became  the  practice 
to  rig  the  market  as  regards  the  shares  of 
particular  joint-stock  banking  companies. 
A  party  would  be  formed,  perhaps  owning 
none  cf  the  shares  of  the  selected  company, 
and  they  would  proceed  to  sell  considerable 
quantities  of  the  shares,  hoping  so  to  damage 
the  reputation  of  the  company  and  lower  the 
value  of  the  stock  as  to  be  able  to  buy  up 
enough  before  delivery  would  be  required. 
This  noxious  kind  of  speculation  was 
checked  by  an  Act  of  Parliament  (30  Victoria, 
c.  29,1867),  which  now  requires  the  seller  of 
bank  shares  to  specify  the  numbers  or  the 
registered  proprietcrs  of  the  shares  which  he 
is  selling  for  future  delivery. 

It  might  be  urged,  indeed,  that  there  is  a 
natural  right  belonging  to  all  persons  to 
make  promises,  if  they  can  thereby  benefit 
themselves.  Any  one  can  accept  a  bill, 
thereby  promising  to  deliver  money  at  a  fu- 
ture day.  It  is  quite  common  to  make  con- 
tracts involving  the  delivery  of  government 
stock,  or  of  cotton  or  corn  expected  to  arrive 
by  sea,  before  delivery  becomes  due.  But 
we  must  remember  that  all  laws  and  all 
social  relations  are  devised  to  secure  the 
greatest  good  of  the  greatest  number.  If  a 
right  to  make  all  promises  be  recognized  by 
law,  it  must  be  because  the  right  is  benefi- 
cial to  society,  and  it  is  the  recognition  by 
law  which  makes  it  a  right.  If,  on  the  con- 
trary, it  be  found  by  experience  that  freedom 
of  making  and  selling  promises  in  a  particu- 
lar wi<y  gives  scope  to  illegitimate  specula- 
tion, or  otherwise  injures  society  more  than 
it  produces  benefit,  the  law  ought  certainly 
1 3  restrict  this  freedom,  and  regulate  the  mat- 
ter for  the  good  of  the  community.  The 
whole  matter,  in  short,  is  one  of  expediency. 
It  used  to  be  held  as  a  general  rule  of  law, 
that  any  present  grant  or  assignment  of 
goods  not  in  existence  is  without  operation. 
Though  the  rule  seems  to  be  generally  disre- 
garded, there  are  many  cases  in  which  it 
might  be  advantageously  enforced. 

PECUNIARY   PROMISSORY  NOTES. 

Applying  these  considerations  to  the  spe- 
cial matter  of  money,  we  find  that  pecuniary 
promises  are  nearly  always  of  a  general  kind. 
He  who  undertakes  to  pay  a  sum  of  money 
on  a  future  day,  farely  specifies  the  individ- 
ual coins  which  will  be  paid.  In  fact,  the 
Coinage  Act,  in  defining  legal  tender,  makes 
any  sovereigns,  shillings,  and  pence,  duly 
coined  and  of  proper  weight,  a  discharge  for 
a  corresponding  sum  named  in  a  contract. 
It  is  true  that  just  as  pipes  of  wine  are 
warehoused  in  the  London  docks,  cases  of 
gold  and  silver  bullion  or,  it  may  be,  of  for 
eign  or  English  coin,  are  warehoused  in  the 
vaults  of  the  Bank  of  England.  In  fact, 
Imports  of  gold  and  silver,  at  whatever  port 
in  the  kingdom  they  may  arrive,  are  almost 


always  sent  up  for  delivery  at  the  bullion 
office  of  the  bank,  which  acts  precisely  as  if 
it  were  a  dock  warehouse,  and  delivers  the 
packages  on  production  of  the  bills  of  lading. 
These  bills  of  lading  are  specific  promises, 
and  may  yet  be  passed  by  endorsement  fromr 
one  person  to  another.  Such  consignments 
of  bullion,  however,  do  not  enter  into  the 
banking  accounts. 

The  Bank  of  England  note  is  neither  more 
nor  less  binding  upon  the  bank  authorities 
than  a  bill  of  lading,  but  it  does  noi  specify 
the  bag  or  box  of  money  to  be  employed  in 
paying  it.  Almost  all  other  pecuniary  en- 
gagements  are  in  the  same  way  general  en- 
gagements. No  banker  could  make  any 
profit  if  he  were  obliged  to  put  away  the 
sovereigns  deposited  by  a  customer  until  that 
customer  presented  a  check  for  them,  nor 
would  there  usually  be  a  sufficient  motive  for 
desiring  such  a  special  pledge.  The  idea  never 
enters  into  our  heads  in  mercantile  matters. 
Disputes,  however,  have  occasionally  arisen 
upon  this  point.  Some  people  have  a  pecu- 
liar fancy  for  collecting  particular  coins,  and 
an  old  lady,  having  formed  a  hoard  of  four- 
penny  pieces,  died  after  bequeathing  them  to 
a  relative.  Although  wishing  to  keep  them, 
out  of  respect  for  the  old  lady,  this  relative 
was  in  want  of  ready  cash,  and  desired  to 
realize  their  value;  he  thought  to  achieve 
both  objects  by  pledging  them  with  a  pawn- 
broker. The  broker  readily  received  them, 
but  after  a  while  thoughtlessly  used  the 
groats  as  change.  When  the  pawn-ticket 
was  presented  he  considered  that  the  tender 
of  the  equivalent  sum  in  sovereigns  and  shil- 
lings was  a  sufficient  discharge.  Here,  how- 
ever, the  pledge  should  have  been  held  as  a 
special  one. 

Now,  if  pecuniary  promises  were  always  of 
a  special  character  there  could  be  no  possible 
harm  in  allowing  perfect  freedom  in  the  issue 
of  promissory  notes.  The  issuer  would 
merely  constitute  himself  a  warehouse-keepjr, 
and  would  be  bound  to  hold  each  special  lot 
of  coin  ready  to  pay  each  corresponding  note. 
But  this  is  not  the  case,  and  much  harm  may 
arise  from  the  excessive  issue  of  promises  to 
pay  gold  on  demand.  The  gold  market  may 
be  rigged  as  well  as  the  iron  or  any  other 
special  market.  One  difference  is  that  the 
gold  market  is  the  most  extensive  of  all  mar- 
kets, so  that  a  great  many  individuals  or 
companies,  each  acting  under  the  separate 
impulses  of  self-interest,  must  over-issue 
notes  in  order  to  produce  any  appreciable  ef- 
fect. A  further  difference  is  that  gold,  being 
itself  the  measure  of  value,  the  rise  or  fall  in 
ts  price  cannot  be  apparent  except  in  the 
average  fall  or  rise  in  the  price  of  many  com- 
modities. This  subject  must  be  pursued  in 
Chapter  XXIV. 

PRINCIPLES   OF  THE    CIRCULATION    OF    REP- 
RESENTATIVE MONEY. 

In  the  last  two  sections  of  Chapter  VI I L 


60  [108] 


MONEY  AND  THE  MECHANISM  OF 


we  founu  that  by  analysing  the  moiives 
of  individuals  in  receiving,  holding,  or 
paying  away  metallic  money,  we  could  ar- 
rive at  certain  laws  of  circulation,  which  were 
amply  confirmed  by  experience.  It  was  also 
pointed  out  that  the  same  laws  might  be  extend- 
ed mutatis  mutandis,  to  the  mixed  circulation 
of  metallic  and  paper  money.  Habit  is 
almost  as  powerful  in  supporting  the  use  of 
representative  money  as  of  real  metallic  coins. 
Persons  who  have  long  been  accustomed  to 
pay  away  certain  pieces  of  paper  without  loss, 
"will  continue  to  regard  them  as  good  currency 
until  some  rude  shock  is  given  to  their  confi- 
dence. This  may  go  so  far  that  a  dirty  bit 
of  paper,  containing  a  promise  to  pay  a  sover- 
eign, will  be  actually  preferred  to  the  beau- 
tiful gold  coin  which  it  promises.  The  cur- 
rency of  Scotland  is  a  standing  proof  of  this 
assertion;  and  the  same  may  be  said  of  Nor- 
way, where,  until  1874,  no  gold  at  all  was  in 
circulation,  and  notes  for  one,  five,  or  ten 
dollars  formed  the  principal  part  of  the  cur- 
rency. 

There  is  one  all-important  point  in  which 
representative  differs  from  metallic  money  ; 
it  will  not  circulate  beyond  the  boundaries  of 
the  district  or  country  where  it  is  legally 
current  or  habitually  employed.  No  doubt 
Bank  of  England  notes  are  frequently  car- 
ried abroad  by  travelers,  and  are  in  most 
places  readily  exchanged  for  the  money  of 
the  locality  ;  but  they  never  circulate,  and 
are  treated  as  bills  upon  London,  forming  a 
convenient  mode  of  remittance.  They  do 
not  satisfy  a  debt  from  this  to  another  coun- 
try, but  rather  create  it,  an  English  bank- 
note, in  the  hands  of  a  Paris  banker,  repre- 
senting a  claim  which  he  has  upon  the  Bank 
of  England.  The  only  money  which  can 
really  be  exported  in  payment  of  debts  due 
to  foreign  merchants  is  standard  metallic 
money.  Hence  paper  money  has  exactly  the 
Same  capacity  for  driving  out  standard 
money  that  light  or  depreciated  coins  pos- 
sess. 

In  the  case  of  inconvertible  notes  this  has 
always  been  most  obvious.  As  the  quantity 
of  such  notes  issued  progressively  increases, 
as  almost  always  happens,  coin  must  be  ex- 
ported, otherwise  the  currency  would  become 
excessive.  But  when  most  of  the  coin  is 
gone,  need  of  it  begins  to  be  felt  for  making 
foreign  payments,  and  then  the  value  of  the 
paper  falls  below  that  of  the  coin  which  it  is 
supposed  to  correspond  to.  Many  persons 
begin  to  hoard  the  coins  for  the  sake  of  an- 
ticipated profit,  and  nothing  but  paper  is 
Soon  to  be  found  in  circulation.  This  effect 
cf  paper  in  driving  coin  out  of  use  has  been 
manifested  over  and  over  again,  as  in  the 
time  of  the  assignats  of  the  French  Revolu- 
tion, the  suspension  of  specie  payments  at 
the  Bank  of  England  between  1797  and  i8iq, 
and  the  late  American  war.  One  of  the 
most  recent  and  striking  instances  is  to  be 
found  in  Italy,  where  laree  quantities  of 


beautiful  gold  and  silver  coins?  had  been 
struck  in  the  years  1862  to  1865,  but  all  dis- 
appeared very  rapidly  from  circulation  as 
soon  as  ths  co  **s  forct  of  paper  money  was 
proclaimed. 


CHAPTER  XVIII. 

METHOo*    OF     REGULATING    A    PAPER    CUX' 
RENCY. 

We  may  now  proceed  with  advantage  to 
consider  the  various  methods  on  which  the 
issue  of  paper  money  may  be  conducted.  This 
question  is  perhaps  the  most  vexed  and  de- 
batable one  in  the  whole  sphere  of  political 
economy  ;  but,  by  carefully  adhering  to  the 
analysis  of  facts,  we  may,  perhaps,  get  a  view 
of  the  subject  free  from  the  great  perplexities 
in  which  it  is  commonly  involved.  The  ele- 
mentary principles  of  the  subject  are  not  of  t 
complex  character  ;  and  if  we  hold  tenaciously 
to  those  piinciples,  we  may  perhaps  be  saved 
from  that  dangerous  kind  of  intellectual  verti- 
go which  often  attacks  writers  on  the  cur- 
rency. 

The  state  may  either  take  the  issue  of 
representative  money  into  its  own  hands,  as 
it  takes  the  coining  of  money,  or  it  may  allow 
private  individuals,  or  semi-public  companies 
and  corporations,  to  undertake  the  work 
under  more  or  less  strict  legislative  control. 
We  will  afterward  briefly  consider  the  rela- 
tive advantages  of  government  and  private  is- 
sues, but  in  either  case  we  may  lay  down  the 
following  series  of  methods  according  to 
which  the  amount  of  issue  may  be  regulated, 
and  the  performance  of  the  promises  guaran- 
teed. 

1.  The  Simple  Deposit  Method.  The  issuer 
of  promissory  notes  may  be  obliged  to  keep  a 
stock  of  coin  and  bullion  constantly  on  hand, 
equal  in  amount  to  the  aggregate  of  the  un- 
canceled  notes,  each  of  which,  being  instantly 
paid  on  presentation,  will  produce  a  corre 
spending  decrease  of  the  reserve. 

2.  The  Partial  Deposit  Method.     Instead 
of   being   obliged  to  keep  the  whole  of  the 
precious  metals   deposited  in  his  vaults,  the 
issuer  may  be  allowed  to  invest  a  fixed  amount 
in  government  funds,  or  other  safe  profitable 
securities. 

3.  The  Minimum  Reserve  Method.     The 
issuer  may  be  bound  to  have  on  hand  undef 
all  circumstances  a  fixed  minimum  amount  of 
coin  and  bullion. 

4.  The  Proportional  Reserve  Method.    The 
reserve  may  be  made  to  vary  with  the  amount 
of   outstanding     notes,  being,  say,  at   least 
one-third  or  one-fourth  of  the  total. 

5.  The  Mzximum  Issue  Method.     Permis- 
sion may  be  given  to  issue  notes  not  exceed- 
ing in  the  aggregate  a  fixed  amount,  prohibi- 
tory   penalties    being    imposed    upon    anj 
breach  of  this  restriction. 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


poo]  <; 


6.  The  Elastic    Limit    Method.     A   limit 
may  be  assigned  to  the  aggregate  amount  of 
notes,  as  in  the  last  method,  but  the  penal- 
ties on  the  excessive  issue  may  be  intention- 
ally made  so  light,  that  the  issuer  will  under 
some  circumstances  prefer  to  pay  the  penalty 
rather  than  restrict  his  issues. 

7.  The  Documentary  Reserve  Method.    The 
reserve   of   property  which  the  issuer  is  re- 
quired to  keep  may  consist,  not  of  gold  or 
silver  coin    or   bullion,  but   of   government 
funds,  bonds,  shares,  or  other  documentary 
securities. 

5.  rhc  Real  Property  Reserve  Method.  In- 
stead of  merely  documentary  property,  the 
issuer  may  be  allowed  to  treat  various  prop- 
erty, such  as  land,  houses,  ships,  railway 
shares,  etc  ,  as  his  reserve  of  wealth  to  meet 
engagements. 

9.  The  Foreign  Exchanges  Method.     Some 
important  bank  may  be  aljowed  to  issue  con- 
vertible notes  on  the  understanding  that  it 
will  not  increase  the  amount  in  circulation  so 
long  as  the  foreign  exchanges  are  against  the 
country,  and  render  the  export  of  specie  prof- 
itable. 

10.  The  Free  Issue  Method.    The  business 
of  issuing  promissory  notes  may  be  left  open 
to  the  free  competition  of  all  individuals,  free 
from    any  restrictions  or  conditions,  except 
such   laws  as  apply  to  all  commercial  con- 
tracts and  promises. 

II. 
may 


be  required  to  be  partially  in  the  form  of 
specie,  and  partially  in  documentary  securi- 
ties, or  real  property.  A  banker  may  be  al- 
lowed to  issue  a  certain  fixed  amount  of 
notes  without  any  condition  as  to  reserves, 
and  to  issue  further  notes  on  the  Deposit 
Method. 

It  would  obviously  require  a  very  large 
volume  to  enter  at  all  in  an  adequate  manner 
upon  a  description  of  these  methods,  their 
relative  advantages  or  deficits,  and  the  ways 
in  which  they  have  been  combined  and  car- 
ried into  effect  at  different  times  and  places. 
I  must  therefore  confine  myself  in  this  small 
book  to  a  very  concise  discussion  of  this  most 
extensive  subject. 

I. — SIMPLE    DEPOSIT. 

This  method  is  perfectly  represented  by  the 
ancient  deposit  banks  in  the  Italian  commer- 
cial republics,  by  the  banks  of  Amsterdam 
and  Hamburg,  or  by  the  London  goldsmiths, 
so  long  as  they  only  acted  as  safe  keepers  of 
the  specie  committed  to  their  care.  Notes  is- 
sued on  this  system  have  a  purely  representa- 
tive character,  like  dock  warrants  or  pawn 
tickets,  as  I  have  already  fully  explained.  The 
performance  of  promises  is  rendered  certain 
so  far  as  legislation  can  provide  for  it.  The 
amount  of  such  currency  will  vary  exactly 
like  that  of  a  metallic  currency,  and  there  can 
be  no  fear  of  paper  replacing  specie,  and  driv- 


'  The  Gold  Par  Method.  Paper  money  ing  it,°U^  °f. the  country  because  the  specie 
be  issued  hrnjinr  tho  appcaranoc  of  '  must  ln  vaults  of  the  issuing  banks  be- 
***r™WUt  inconvertible  into  coin.  t™*«°^^~e£_ 


he  issue  being  restricted  as  long  as  any  pre- 
mium on  gold  is  apparent,  the  paper  money 
may  be  thus  maintained  equal  in  value  to  the 
coin  which  it  nominally  represents. 

12.  The  Revemie  Payments  Method.  In- 
convertible paper  money  may  be  freely  issued, 
but  an  attempt  may  be  made  to  keep  up  its 
value  by  receiving  it  in  place  of  coin  in  the 
payment  of  taxes. 


At  the  same  time  the  advantages  of  the 
method  are  comparatively  slight,  because  the 
use  of  paper  representatives  merely  saves  the 
abrasion  of  coin,  and  the  trouble  and  risk  of 
carrying  it  about  and  counting  it.  The  com- 
munity kses  the  interest  of  the  whole  sura 
held  in  pledge,  and  this  forms  by  far  the 
largest  part  of  the  cost  of  the  currency, 
as  we  have  seen.  The  coin,  too,  may 
be  safer  in  the  hands  of  the  people. 


The   Deferred  Convertibility   Method.     "*    3<  T .    u 

mav  hpi^invl  nrr-rri*,'™  tn  nav  ™   I  When  lvmg   apparently  useless    within   the 


Ts  otes  may  be  issued  promising  to  pay  me 
tallic  money  at  some  future  day,  either  defi- 
nitely fixed  or  dependent  upon  political  or 
other  contingent  events. 

14.  The  Paper  Money  Method.  Lastly, 
those  who  coin  apparent  promissory  notes 
may  be  entirely  absolved  from  the  perform- 
ance of  their  promises,  so  that  the  notes  cir- 
culate by  force  of  habit,  by  the  command  of 
tne  sovereign,  or  in  consequence  of  the  ab- 
sence of  any  other  medium  of  exchange. 

Although  I  have,  in  the  above  statement, 
enumerated  no  less  than  fourteen  distinct 
methods  of  managing  the  issue  of  paper  cur- 
rency, it  is  by  no  means  certain  that  other 
methods  have  not  been  employed  from  time 
to  time.  There  may  be,  in  fact,  an  almost 
unlimited  number  of  devices  for  securing  the 
performance  of  promises,  or  for  rendering 
the  performance  unnecessary.  Moreover, 
these  methods  may  be  combined  together  in 
almost  unlimited  variety.  The  reserve  may 


reach  of  an  abritraiy  government,  it  often 
proves  an  irresistible  temptation.  Charles  I. 
seized  the  money  in  the  Tower.  When  the 
French  invaded  Holland  in  1795,  a  large  part 
of  the  specie  supposed  to  be  deposited  in  the 
vaults  of  the  bank  of  Amsterdam  was  not 
forthcoming,  having  been  secretly  lent  to  the 
Dutch  East  India  Company,  and  the  city  au- 
thorities. The  Russian  government  diligent- 
ly collected  a  bank  reserve  in  the  citadel  of 
St.  Petersburg,  which  was  under  the  cogni- 
zance of  members  of  the  Exchange,  until  the 
troubles  of  1848  forced  the  emperor  to  as- 
sume the  control  himself.  In  innumerable 
instances  governments,  including  the  English 
government  in  1797,  have  made  use  of  bank 
deposits,  under  the  form  of  suspending  specie 
payments. 

2. — PARTIAL  DEPOSIT. 
The   Bank  of  England,  under  the   Bank 
Charter  Act  of  1844,  perfectly  represents  this 


62  [110] 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


method.  For  each  additional  five-pound  note 
which  is  put  forth  out  of  the  issue  department, 
gold  to  the  weight  of  616  37  grains  must  be 
deposited  in  that  department.  The  whole 
amount  of  gold,  however,  retained. in  the 
vaults  is  less  by  ^15,000,000  than  the  out- 
standing notes,  this  constant  difference  being 
covered  by  documentary  securities,  and  by  a 
sum  of  about  eleven  millions  which  the  bank 
lends  to  the  government  without  interest. 
Under  this  arrangement  we  secure  all  the  ad-  | 
vantages  of  the  simple  deposit  system,  while  j 
the  community  gains  the  interest  amounting  i 
to  about  ^445,000,  of  which  the  government 
receives  ^188,003  per  annum.  The  charac- 1 
ter  of  the  contract  between  the  government 
and  the  bank  is  of  too  intricate  a  nature  to  be 
readily  fathomed  or  described,  but  it  substan- 
tially amounts  to  the  government  borrowing 
the  larger  part  of  the  fifteen  millions  of  de- 
posits, and  allowing  the  bank  to  use  the  rest 
to  cover  the  cost  of  printing  and  managing 
the  note  circulation.  I  shall  treat  of  this 
system  again  in  Chapter  XXIV.  The  Partial 
Deposit  method  is  the  basis  of  the  new  law 
concerning  the  issue  of  notes  in  the  German 
empire,  in  combination  with  the  Elastic 
Limit  method,  which  possibly  constitutes  an 
improvement. 

3. — MINIMUM   RESERVE. 

One  mode  of  guaranteeing  the  payment  of 
notes,  which  might  be  suggested,  would  con- 
sist in  obliging  the  issuers  to  keep  on  hand 
a  stock  of  specie,  which  is  never  to  be 
allowed  to  fall  below  a  certain  fixed  amount. 
This  would  be  like  recommending  a  man  to 
avoid  impecuniosity  by  always  keeping  a 
shilling  in  his  pocket.  The  fact  that  the 
minimum  amount  must  be  kept  in  the  vaults 
renders  it  unavailable  for  meeting  demands 
when  they  come.  There  can  be  no  use  in 
such  a  reserve  unless  there  be  a  power  exer- 
cised by  the  legislature  or  executive  govern- 
ment, of  arbitrarily  suspending  the  operation 
of  the  law  when  there  is  a  run  upon  the 
banks. 

4. — PROPORTIONAL  RESERVE. 

The  issuer  of  promises  to  pay  money  on 
demand  may  be  required  to  keep  a  reserve  of 
coin  never  less  than,  say,  one-fourth  of  the 
whole  outstanding  notes.  This  is  analagous 
to  the  method  on  which  the  National  Bank 
currency  of  the  United  States  was  lately 
regulated,  and  it  is,  perhaps,  better  to  en- 
force the  keeping  of  a  certain  amount  than  to 
leave  the  matter  entirely  to  the  discretion  and 
good  faith  of  the  individual  issuers.  As  the 
banker  sees  his  reserve  running  down  nearly 
to  the  legal  limit,  he  will  be  compelled  to  use 
additional  caution,  in  order  to  avoid  a  breach 
of  the  law.  But  if  the  untoward  state  of 
trade  and  credit  causes  any  large  portion  of 
the  outstanding  notes  to  be  presented,  the 
legal  tender  reserve  will  be  diminished  in  a 
••reater  proportion  than  the  amount  of  notes, 
which  is  larger  in  absolute  quantity.  If 


there  be  100,000  dollars  of  outstanding  notes, 
and  40,000  dollars  reserve,  then  it  is  obvious 
that  the  presentation  of  20,000  dollars  of 
notes  will  reduce  these  numbers  respectively 
to  80,000  dollars  of  outstanding  notes,  and 
20,000  dollars  of  reserve  ;  and  if  the  law  re- 
quired the  reserve  to  be  one-fourth  part  of 
the  liabilities,  no  more  notes  could  be  paid. 
Thus,  from  the  moment  that  the  banker 
allows  his  reserve  to  touch  the  legal  minimum, 
it  becomes  unavailable  to  him,  except  by  a 
breach  of  law,  and  it  may  be  said  that  the 
law  is  of  little  use  except  when  broken.  This 
system,  in  fact,  reduces  itself,  when  it  comes 
into  operation  at  all,  to  the  Minimum  Re- 
serve method  last  described.  The  banker 
cannot  touch  his  reserve  just  when  he  most 
wants  it,  and  the  deadlock  thus  occasioned 
was  acutely  felt  in  the  United  States  during 
the  panic  of  1873. 

This  method  of  regulation  has,  moreover, 
little  or  no  effect  in  removing  the  motives  for 
an  extension  of  the  circulation.  The  greater 
part  of  the  value  of  every  additional  note  kept 
in  circulation  is  a  gratuitous  addition  to  the 
loanable  capital  of  the  bank,  and  bears  inter- 
est as  long  as  it  can  be  kept  afloat. 

5. — MAXIMUM   ISSUE. 

To  allow  a  bank  or  banks  to  issue  in  the 
aggregate  a  certain  fixed  amount  of  prom- 
issory notes,  and  no  more,  appears  to  me 
quite  consistent  with  the  principles  of  polit- 
ical economy.  It  saves  interest  upon  a  cer- 
tain portion  of  the  circulating  medium,  and 
supplies  a  convenient  and  economical  cur- 
rency. At  the  same  time,  the  notes  issued 
cannot  drive  gold  out  of  the  country  beyond 
a  fixed  amount.  It  is  strongly  urged  by  Mr. 
R.  Inglis  Palgrave  and  others  that  the  limit- 
ation is  arbitrary,  and  that  the  people  want 
more  money  ,  but  it  is  always  open  to  them 
to  use  metallic  money  instead.  The  limitation 
imposed  is  not  upon  money  itself,  but  upon 
the  representative  part,  and  though  we  there- 
by forego  the  increased  saving  of  interest 
upon  enlarged  issues,  this  loss  may  be 
balanced  by  the  freedom  from  any  risk  of 
producing  a  fictitious  abundance  of  gold. 
This  system  is  sufficiently  illustrated  in  the 
170  banks  of  England  which  are  still  allowed 
to  issue  notes.  Sir  Robert  Peel  provided, 
in  the  Act  of  1844,  that  they  might  continue 
to  issue,  without  any  condition  as  to  reserve, 
the  same  quantity  of  notes  as  they  had 
issued  on  the  average  of  twelve  weeks  pre- 
ceding a  day  named.  If  any  bank  ex- 
ceeded the  amount  thus  determined  it  was  to 
be  fined  a  sum  of  money  equal  to  the  average 
excess  of  the  month  ;  and  sworn  returns  of 
their  circulations  were  required  from  all  issu- 
ing banks. 

6. — ELASTIC  LIMIT. 

The  above  is  the  best  name  which  I  can 
find  for  a  new  method  of  regulation  which 
has  just  been  adopted  in  the  Bank  Act  of  the 


MONi:\    AM>    I  UK  MECHANISM  OF   KXCIIANGE. 


[Ill]  68 


German  empire.  So  far  as  regards  the  issue  j  restrict  ourselves  to  a  single  commodity  gold, 
of  bank-notes  the  banking  organization  of  |  but  may  mortgage  for  the  purpose,  land, 
Germany  will  substantially  resemble  that  of  houses,  or  any  kind  of  fixed  real  property. 


England.  The  new  Imperial  Bank,  and 
such  of  the  state  or  other  banks  which  con- 
form to  the  requirements  of  the  law,  will  have 
the  right  of  issuing  notes  not  backed  by  gold 
to  the  aggregate  sum  of  385  millions  of 
marks.  They  may  apparently  issue  any 
further  quantity  of  notes  in  exchange  for  a 
deposit  of  gold  to  an  equal  value.  So  far  the 
method  is  precisely  that  of  \\\t  partial  deposit 
already  described.  Observing,  however, 
that  the  English  Bank  Charter  Act  has 
on  several  occasions  been  violated  to  prevent 
a  panic,  the  German  legislature  has  provided 
that  a  tax  of  5  per  cent,  be  paid  thereon. 
It  is  intended  in  this  way  to  make  it  unpro- 
fitable for  any  bank  to  exceed  the  normal 
limits.  It  seems  likely  that  this  provision 
will  work  well,  and  form  an  improvement  on 
our  method.  The  Englisn  Government,  in- 
deed, has  always  deprived  the  Bank  of  Eng- 
land of  the  interest  on  any  excess  of  notes 
which  it  issued  during  a  suspension  of  the 
Bank  Act,  but  the  German  law  makes  the 


The  celebrated  scheme  of  John  Law  was  of 
this  'nature-  In  his  remarkable  tract  on 
"  Money  and  Trade  Considered,  with  a  Pro- 
posal for  Supplying  the  Nation  with  Money," 
published  in  1705,  he  suggests  that  commis- 
sioners should  be  appointed  to  "  coin  "  notes 
"to  be  received  in  payments  where  offered," 
that  is,  I  presume,  as  legal  tender.  He  sets 
forth  three  alternative  modes  of  issuing  these 
notes  on  land  security,  the  first  and  simplest 
being  to  lend  them  to  land-owners  at  the  ordi- 
nary interest,  to  the  extent  of  one-half  or  two- 
thirds  of  the  value.  He  endeavors  to  provide 
against  depreciation  of  the  notes  by  taking 
care  that  the  prices  are  always  estimated  ia 
silver  money. 

The  assignats  of  the  French  Revolutionary 
Government  represented  land  assigned,  name- 
ly, portions  of  the  confiscated  estates  of  the 
Church.  They  were  to  b^  received  back  and 
canceled  as  the  lands  were  bought  by  the 
public,  but,  as  the  price  of  the  land  was  not 
fixed,  no  proportion  was  established  between 


limit  of  issue  elastic  in   all  cases,  so  as   to    land  and  paper,  and  no  amount  of  land  could 

prevent  the  assignats  from  falling  as  they  did 
to  one  two-hundredth  part  of   their  original 
•  value.     In  the  subsequent  issue  of  Mandats, 


avoid  the  danger  of  panic. 

7. — DOCUMENTARY    RESERVE. 


It  might  seem  enough  in  order  to  ensure 
the  convertibility  of  notes,  that  the  bankers 
issuing  them  should  prove  their  possession  of 
abundant  funds,  in  the  form  of  government 
stocks,  bonds,  exchequer  bills,  rentes,  or  even 
good  mercantile  bills,  sufficient  to  establish 
the  perfect  solvency  of  the  firm.  If  a  con- 
siderable margin  be  left,  it  may  seem  impos- 
sible that  the  notes  should  not  ultimately  be 
paid.  To  argue  in  this  way,  however,  is  to 
forget  that  bank-notes  are  promises  to  pay 
gold  c/r  legal  tender  metallic  money  on  demand, 
and  that  to  pay  the  notes  ultimately  is  not  to 
pay  them  on  demand.  With  such  a  reserve, 
payment  can  only  be  made  in  any  large  quan- 
tity by  selling  the  stocks  and  bonds  for  me- 
tallic money,  but  it  is  just  when  there  is  a 
scarcity  of  gold  and  silver,  that  notes  are  pre- 
sented for  payment.  No  doubt  good  govern- 
ment funds  and  good  bills  can  always  be 
sold  at  some  price,  so  that  a  banking  firm 
with  a  strong  reserve  of  this  kind  might  al- 
ways maintain  their  solvency.  But  the 
remedy  might  be  worse  for  the  community 
than  the  disease,  and  the  forced  sale  of  the 
reserve  might  create  such  a  disturbance  in 
the  money  market  as  would  do  more  harm 
than  the  suspension  of  payment  of  the  notes. 
Payment  of  notes  on  demand  implies  the  pos- 
session of  adequate  gold  and  silver,  and  if 
there  be  not  sufficient  bullion  and  coin  in  the 
country,  no  paper  documents,  or  promises  to 
pay  at  a  future  day,  can  take  their  place. 

8. — REAL   PROPERTY    RESERVE. 

Many  currency  theorists  have  held,  that  in 
securing  the  repayment  of  notes  we  need  not 


an  attempt  was  made  to  fix  the  price  of  land 
in  mandats,  but  this  scheme«also  failed.  The 
inconvertible  land  mortgage  notes,  issued  by 
Frederick  the  Great  to  recruit  his  treasury,  ex- 
hausted by  wars,  were  of  somewhat  the  same 
nature,  but  bore  interest. 

Land  is  doubtless  one  of  the  best  kinds  of 
security  for  the  ultimate  repayment  of  a  debt, 
and  is  therefore  very  suitable  when  money  is 
lent  for  a  long  time.  But  representative 
bank-notes  purport  to  be  equivalent  to  gold 
payable  on  demand,  and  nothing  is  less 
readily  convertible  into  gold  on  an  emergency 
than  land.  In  this  respect  a  reserve  of  real 
property  is  worse  than  a  reserve  of  excheq- 
uer bills  or  consols. 

This  method  of  providing  paper  money 
has  generally  been  advocated  on  the  ground 
that  the  quantity  of  money  in  circulation 
might  thus  be  greatly  increased,  and  the 
wealth  of  the  nation  augmented.  It  could 
readily  be  shown,  however,  that  an  increase 
of  the  money  in  circulation  will  lead  to  a  re- 
duction in  its  value.  In  any  given  state  of 
industry  only  a  certain  quantity  of  circula- 
ting medium  is  needed,  and  were  the  notes 
really  convertible  into  definite  quantities  of 
land  or  any  other  substantial  commodity,  the 
excess  of  notes  would  ultimately  be  present- 
ed for  payment.  To  suppose  that  the  cur- 
rency could  be  made  equal  in  aggregate 
value  to  any  large  part  of  the  lands  of  the 
country  is  evidently  absurd. 

9. — REGULATION      BY      THE       FOREIGN      EX- 
CHANGES. 

A  theory  was  very  much   in   favor  among 


64  [112] 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


bank  directors  at  the  beginning  of  this  cen 
kury  that  a  paper  currency  could  be  regula 
ted  merely  by  watching  the  rates  of  the  foreign 
exchanges,  and  restricting  the  issue  when 
the  lowness  of  the  rates  and  the  export  ol 
specie  showed  a  depreciation  of  the  paper. 
This  was  one  of  the  methods  proposed  in 
opposition  to  the  celebrated  Bullion  Report, 
and  a  summary  of  the  interminable  discus- 
sions on  the  subject  will  be  found  in  Mr. 
Macleod's  Treatise  on  Banking,  Vol.  II. 
Chapter  IX. 

Regulation  by  the  foreign  exchanges  is 
much  better  than  no  regulation  at  all,  but  if 
'perfectly  carried  out  it  would  give  exactly  the 
'same  results  as  the  deposit  method,  and  is 
only  a  loose  and  indirect  way  of  reaching  the 
same  end. 

IO. — FREE  ISSUE  SYSTEM. 


There  is  a  school  of  «conomists,  both  in 
this  country  and  America,  who  uphold  the 
expediency  of  allowing  all  persons  to  issue 
as  many  promissory  notes  payable  on  de- 
mand as  they  can  get  other  persons  to  ac- 
cept. They  call  this  system  the  Free  Bank- 
ing system,  but  incorrectly,  because  it  is  no 
necessary  function  of  a  banker  to  issue 
promissory  notes,  and  a  great  many  banks 
«xist  in  England  without  any  power  of  issue. 
This  subject  will  be  further  discussed  in  a 
subsequent  chapter,  and  I  will  only  add 
here  that  under  the  system  of  unrestricted 
issue,  a  banker  is  bound  by  law  to  pay  a  note 
issued  by  him,  but  it  is  left  entirely  at  his 
own  discretion  to  keep  such  balance  of  specie 
for  the  purpose  as  he  may  think  proper.  As 
*  general  rule,  no  doubt,  notes  thus  issued 
will  be  paid  ;  but,  having  regard  to  the  great 
fluctuations  of  commerce,  which  are  becom- 
ing more,  rather  than  less  marked,  there  will 
occur  periods  when  a  pressure  for  payment 
of  notes  will  be  made.  Experience  abun- 
dantly shows  that  a  certain  number  of  indi- 
viduals will  calculate  too  confidently  on  their 
good  fortune,  and  fail  to  carry  out  their 
promises  and  intentions  when  the  critical 
iime  arrives. 

II. — THE  GOLD   PAR  METHOD. 

Assuming  an  inconvertible  paper  currency 
to  be  issued,  and  to  be  entirely  in  the  hands 
ol  the  government,  many  of  the  evils  of  such 
r.  system  might  be  avoided  if  the  issue  were 
limited  or  reduced  the  moment  that  the  price 
of  gold  in  paper  rose  above  par.  As  long  as 
the  notes  and  the  gold  coin  which  they  pre- 
tend to  represent  circulate  on  a  footing  of 
eqnality,  they  are  as  good  as  convertible. 
Since  the  beginning  of  the  Franco -Prussian 
war,  the  Bank  of  France  appears  to  have 
acted  successfully  on  this  principle,  and  the 
inconvertible  notes  were  never  depreciated 
more  than  about  one-half  or  one  per  cent,  in 
spite  of  the  vast  political  or  financial  troubles  in 
France.  But  this  is  one  of  the  very  few  cases 


been  depreciated.  During  the  restriction  of 
specie  payments  in  England,  gold  was  bought 
and  sold  at  a  premium  varying  up  to  25  per 
cent.,  yet  Fox,  Vansitfart,  and  other  leading 
men  of  the  time,  declared  it  to  be  absurd  to 
suppose  that  paper  was  depreciated.  So  un- 
accouutable  are  the  prejudices  of  men  on  the 
subject  of  currency  that  it  is  not  well  to  leave 
anything  to  discretionary  management. 

12. — CONVERTIBILITY  BY  REVENUE 
PAYMENTS. 

In  many  instances  governments  have  fried 
to  maintain  the  value  of  a  paper  circulation  by 
engaging  to  receive  it  as  taxes,  or  even  ren. 
dering  its  use  for  this  purpose  obligatory. 
The  Russian  government,  when  issuing  assign- 
ats,  received  them  at  a  fixed  rate  in  place  of 
copper  coin,  and  required  that  at  least  one- 
twentieth  part  of  every  payment  was  to  be 
thus  paid.  The  French  assignats  of  the  Rev- 
olution were  also  received  at  the  public  treas 
uries.  This  would  be  a  fair  method  of  secur- 
ng  stability  of  value  oh  two  conditions  :— -(i) 
:hat  the  taxes  or  charges  were  themselves 
evied  according  to  a  fixed  tariff ;  and  (2) 
:hat  the  quantity  of  notes  issued  were  kept 
within  such  moderate  limits  that  any  one 
wishing  to  realize  the  metallic  value  of  the 
notes  could  find  some  one  wanting  to  pay 
axes,  and  therefore  willing  to  give  coin  for 
notes.  It  is  very  unlikely,  however,  that 
hese  conditions  could  e^er  be  fully  and  con- 
veniently  realized  in  practice. 

The    United    States     greenback    currency 
was  made  receivable  for  United  States  stamps, 
ind  was  also  to  be  received  in  payment  of  all 
axes  and   dues   in  sums  of  certain  assigned 
amounts,  excepting  Customs  dues.     But  the 
act  that  some  notes  are  thus  withdrawn  will 
not  prevent  depreciation,  if  they  be  soon  paid 
out   again    with    additions    required  to  meet 
the  pressing  expenditure  of  a  government. 

In  a  small  way  postage  stamps  are  becom- 
ing used  'as  currency  in  several  countries. 
They  were  extensively  used  in  the  earlier  years 
of  the  American  war  as  the  well-known  frac- 
tional currency.  They  are  now  a  recognized 
medium  of  payment  in  England,  being  re- 
purchased by  most  postmasters  at  a  discount 
of  two  and  one-half  per  cent,  if  presented  in 
a  piece  of  two  or  more  undivided  stamps. 
Independently,  however,  of  re-purchase, 
stamps  are  so  continually  being  canceled  by 
use  in  postage,  that  their  value  can  hardly  be 
lowered  by  excess  of  quantity.  They  form  a 
convenient  and  costless  form  of  remittance 
for  very  small  sums,  say  from  a  halfpenny  to 
five  shillings,  and  little  or  no  objection  can 
be  made  to  their  occasional  use  as  change,  in 
place  of  pence.  They  would,  however,  form 
a  very  bad  currency  if  circulated  to  any  great 
extent. 

13. — DEFERRED    CONVERTIBILITY. 

It  is  a  common  resource  for  insurrectionary 


in  which  inconvertible  paper  currency  has  not  I  or  belligerent  governments  in  want  of  funds. 


MONEY  AND  THE  MECHANISM  Of    EXCHANGE.  [113]  65 


to  issue  documents  promising  to  pay  cash 
after  their  successful  establishment.  When 
interest  proportional  to  the  time  is  also  prom- 
ised, these  notes  must  be  regarded  rather  as 
bonds.  Of  such  nature  were  those  issued  by 
Kossuth  in  New  York  to  form  a  Hungarian 
fund,  to  be  paid  after  the  erection  of  an  inde- 
pendent Hungarian  government.  Similar 
bonds  were  signed  by  the  notorious  Walker, 
as  President  of  the  provisional  government  of 
tin-  republic  of  Nicaragua  By  far  the  best 
instance  of  this  kind  of  currency  is  furnished 
by  the  Confederate  States  treasury  notes,  the 
issues  of  which  were  made  payable  six 
mor.ths  after  the  ratification  of  a  treaty  of 
peace  with  the  United  States,  and  further  is- 
sues were  made  payable  two  years  after  such 
treaty. 

All  such  documents  may  be  considered  as 
bills  of  very  long  date  and  of  very  uncertain 
value.  The  public  spirit  of  a  people  in 
time  of  war  often  enables  them  to  be  put 
afloat,  and  the  need  of  currency  keeps  them 
in  circulation  for  a  time,  but  their  value  un- 
dergoes violent  variations,  and  there  are  few 
instances  in  which  such  bills  have  been 
eventually  paid. 

14. — INCONVERTIBLE    PAPER   MONEY. 

Finally  we  come  to  the  undisguised  paper 
money  issued  bv  government  and  ordered  to 
be  received  as  legal  tender.  Such  inconvert- 
ible paper  notes  have  in  all  instances  been 
put  in  circulation  for  convertible  ones,  or  in 
the  place  of  such,  and  they  are  always  ex- 
pressed in  terms  of  money.  The  French 
mandats  of  100  francs,  for  instance,  bear 
the  ambiguous  phrase  ' '  Bon  pour  cent 
francs."  The  wretched  scraps  of  paper 
which  are  circulated  in  Buenos  Ay  res,  are 
marked  "  Un  Peso,  Moneda  Corriente,"  re- 
minding one  of  the  time  when  the  peso  was 
a  heavy  standard  coin.  After  the  promise  of 
payment  in  coin  is  found  to  be  illusory  the 
notes  still  circulate,  partly  from  habit,  partly 
because  the  people  must  have  some  currency, 
and  have  no  coin  to  use  for  the  purpose,  or  if 
they  have,  carefully  hoard  it  for  profit  or  fu- 
ture use.  There  is  plenty  of  evidence  to 
prove  that  an  inconvertible  paper  money, 
carefully  limited  in  quantity,  can  retain  its 
full  value.  Such  was  the  case  with  the  Bank 
of  England  notes  for  several  years  after  the 
suspension  of  specie  payments  in  1797,  and 
such  is  the  case  with  the  present  notes  of  the 
Bank  of  France. 

The  principal  objections  to  an  inconvert- 
ible paper  currency  are  two  in  number. 

1.  The  great  temptation  which  it  offers  to 
over  issue  and  consequent  depreciation. 

2.  The      impossibility      of     varying     its 
amounts  in  accordance  with  the  requirements 
of  trade. 

OVER    ISSUE   OF    PAPER    MONEY. 

It  is  hardly  requisite  to  tell  again  the  well- 
Worn  tale  of  the  over  issue  of  paper  money, 


which  has  almost  always  followed  the  re- 
moval of  the  legal  necessity  of  convertibility. 
Hardly  any  civilized  nation  exists,  excepting 
some  of  the  newer  British  colonies,  which  has 
not  suffered  from  the  scourge  of  paper 
money  at  one  time  or  other.  Russia  has  had 
a  depreciated  paper  currency  for  more  than  a 
hundred  years,  and  the  history  of  it  may  be 
read  in  M.  Wolowski's  work  on  the  finances 
of  Russia.  Repeated  limits  were  placed  to 
its  issue  by  imperial  edict,  but  the  next  war 
always  led  to  further  issues.  Italy,  Austria, 
and  the  United  States,  countries  where  the 
highest  economical  intelligence  might  be  ex- 
pected to  guide  the  governments,  endure  the 
evils  of  an  inconvertible  paper  currency. 
Time  after  time  in  the  earlier  history  of  the 
New  England  and  some  of  the  other  States 
now  forming  parts  of  the  American  Union, 
paper  money  had  been  issued  and  had 
wrought  ruin.  Full  particulars  will  be  found 
in  Professor  Sumner's  new  and  interesting 
"  History  of  American  Currency."  Some  of 
the  greatest  statesmen  pointed  to  the  results  ; 
and  Webster's  opinion  should  never  be  for- 
gotten. Of  paper  money  he  says :  "We 
have  suffered  more  from  this  cause  than  from 
every  other  cause  or  calamity.  It  has  killed 
more  men,  pervaded  and  corrupted  the 
choicest  interests  of  our  country  more,  and 
done  more  injustice  than  even  the  arms  and 
artifices  of  our  enemy." 

The  issue  of  an  inconvertible  money, 
as  Professor  Sumner  remarks,  has  often 
been  recommended  as  a  convenient  means  of 
making  a  forced  loan  from  the  people,  when 
the  finances  of  the  government  are  in  a  des- 
perate condition.  It  is  true  that  money  may 
be  thus  easily  abstracted  from  the  people, 
and  the  government  debts  are  effectually 
lessened.  At  the  same  time,  however,  every 
private  debtor  is  enabled  to  take  a  forced  con- 
tribution from  his  creditor.  A  government 
should,  indeed,  be  in  a  desperate  position, 
which  ventures  thus  to  break  all  social  con- 
tracts and  relations  which  it  was  created  to 
preserve. 

WANT   OF   ELASTICITY   OF   PAPER  MONEY. 

A  further  objection  to  a  paper  money  in- 
convertible into  coin,  is  that  it  cannot  be 
varied  in  quantity  by  the  natural  action  of 
trade.  No  one  can  export  it  or  import  it 
like  coin,  and  no  one  but  the  government  or 
banks  authorized  by  government  can  issue  or 
cancel  it.  Hence,  if  trade  becomes  brisk, 
nothing  but  a  decree  of  the  government  can 
supply  the  requisite  increase  of  circulating 
medium,  and  if  this  be  put  afloat  and  trade 
relapse  into  dullness,  the  currency  becomes 
redundant,  and  falls  in  value.  Now,  even 
the  best  informed  government  department 
cannot  be  trusted  to  judge  wisely  and  im- 
partially when  more  money  is  wanted.  Cur- 
rency must  be  supplied  like  all  other  com- 
modities, according  to  the  free  action  of  the 
laws  of  supply  and  demand. 


66  [114]  MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


Some  persons  have  argued  that  it  is  well  to 
have  a  paper  money  to  form  a  home  currency, 
which  cannot  be  drained  away,  and  will  be 
free  from  the  disturbing  influences  of  foreign 
trade.  But  we  cannot  disconnect  home  and 
foreign  trade,  except  by  doing  away  with  the 
latter  altogether,  If  two  nations  are  to  trade, 
the  precious  metals  must  form  the  inter- 
national medium  of  exchange  by  which  a  bal- 
ance of  indebtedness  is  paid.  Hence  each 
merchant  in  ordering,  consigning,  or  selling 
goods  must  pay  regard  not  to  the  paper  price 
of  such  goods,  but  to  the  gold  or  silver  price 
with  which  he  really  pays  for  them.  Gold 
and  silver,  in  short,  continue  to  be  the  real 
measure  ^  value,  and  the  variable  paper  cur- 
rency '.=>  only  an  additional  term  of  comparison 
which  adds  confusion. 


CHAPTER   XIX. 


CREDIT  DOCUMENTS. 

Much  mystery  has  been  created  on  the 
subject  of  money  by  those  who  assert  vaguely 
that  credit  can  replace  coins, and  that  we  have 
only  to  print  sufficient  bills  and  other  promis- 
sory documents  in  order  to  have  an  abundant 
circulating  medium.  Credit  has  been  said  to 
multiply  property  and  to  perform  all  kinds  of 
prodigies.  When  we  analyze  its  nature,  how- 
ever, credit  is  found  to  be  nothing  but  the 
deferring  of  a  payment.  I  take  credit  when  I 
induce  my  creditor  to  consent  to  my  paying 
a  month  hence  what  might  be  demanded  to- 
day ;  and  I  give  credit  when  I  allow  my 
debtor  in  the  same  manner  to  put  off  the 
liquidation  of  his  debt.  This  credit  involves, 
as  Locke,  very  accurately  said,  "the  expecta- 
tion of  money  within  some  limited  time." 
The  debts,  indeed,  may  consist  of  a  definite 
quantity  of  any  commodity.  I  may  have  to 
pay  corn,  pig-iron,  palm-oil,  cotton,  or  any 
other  staple  article,  but,  generally  speaking, 
debts  are  debts  of  legal  tender  money. 

MEASUREMENT   OF   CREDIT. 

In  order  to  measure  and  define  exactly  the 
amount  of  credit  which  is  given  or  received, 
and  to  estimate  the  present  value  of  a  debt, 
we  must  take  into  account  at  least  five  dis- 
tinct circumstances,  which  are  as  follows: 

1.  The  amount  of  money  to  be  received. 

2.  The  probable  interval  of  time  elapsing 
before  its  receipt. 

3.  The  probability  that  it  will  then  be  paid. 

4.  The  rate  of  interest  likely  to  prevail  in 
the  meantime. 

5-  The  legal  liabilities  which  it  creates  or 
involves. 

Writers  upon  currency  have  be*n  too  much 
accustomed  to  mass  together  all  kinds  of 
credit  documents,  taking  no  account  of  the 
important  results  which  tray  follow  from  very 
slight  legal  or  customary  differences.  No 


doubt  every  kind  of  promise  to  pay  money 
has  a  certain  value,  but  the  degree  in  which  it 
may  be  made  available  to  facilitate  exchange 
varies  exceedingly  according  to  circum- 
stances. 

BANK   NOTES. 

What  we  call  a  bank  note  is  a  promissory 
note,  issued  by  a  banker,  and  binding  him  to 
pay  the  sum  named  therein  to  the  bearer  im- 
mediately upon  demand.  The  note  is  trans- 
ferable by  delivery,  so  that  the  holder  is,  like 
the  holder  of  a  coin,  the  ownerr-/nV»a  facie, 
and  as  such  can  claim  the  fulfillment  of  the 
promise  at  any  moment,  within  reasonable 
hours,  without  inquiry.  The  failure  of  the 
banker  to  pay  the  note  when  presented  does 
not  create  any  liability  between  the  persons 
through  whose  hands  the  note  had  previously 
passed,  so  that  the  note  is  continually  em- 
ployed, like  metallic  money,  in  settling  debts 
and  removing  liabilities.  It  is  most  impor- 
tant to  observe  that  a  bank-note  being  paya- 
ble on  demand  bears  no  interest,  and  is  never 
bought  at  a  discount,  except  when  the  ulti- 
mate pay  is  doubtful.  Hence  the  holder  of  a 
note  has,  like  the  holder  of  ordinary  coins, 
no  motive  in  keeping  it,  except  to  make 
future  purchases.  If  a  man  has  more  liotes 
than  he  expects  to  pay  away  in  a  week  or 
two,  he  will  do  best  to  deposit  them  in  a 
bank,  where  they  will  be  safer  and  at  the 
same  time  bear  interest.  There  is  thus  an 
inherent  tendency  in  notes  to  circulate  like 
coins,  and  to  be  kept  down  in  amount  to  the 
lowest  quantity  consistent  with  the  accom- 
plishment of  retail  purchases. 

CHECKS. 

A  check  payable  to  bearer  is  an  order 
addressed  to  a  banker,  requiring  him  to  pay 
the  sum  named  to  the  bearer  of  the  check  on 
demand.  Like  a  bank-note,  it  bears  no  inter- 
est, and  is  transferable  from  hand  to  hand 
without  any  formality,  so  that  the  holder  is 
prima  facie  the  owner.  If  there  be  no  doubt 
at  all  as  to  the  credit  both  of  the  drawer  and 
of  the  bank  on  which  the  check  is  drawn, 
it  is  difficult  to  see  why  a  check  should  be 
inferior  to  a  bank-note  as  representative 
money,  except  that  it  is  usually  drawn  for  an 
odd  sum.  In  some  places  checks  have  been 
so  used,  and  in  Queensland  at  the  present 
time,  in  the  absence  of  coins  and  notes,  the 
settlers  pay  their  men  in  small  bank  checks., 
which  are  received  at  the  stores,  and  thus  be- 
come the  circulating  medium  of  the  colony. 
Obvious  objections  to  this  use  of  checks  may 
be  pointed  out. 

It  is  impossible  to  be  acquainted  with  the 
check  forms  of  all  banks,  the  signatures  of 
those  who  draw  them  and  the  credit  of  the 
drawers.  If  the  public  were  in  the  habit  of 
daily  receiving  and  paying  checks  without 
minutely  inquiring  into  their  validity,  im- 
mense facilities  would  be  given  to  the  perpe- 
tration of  fraud.  Forgery  would  be  easy  but 


MOM-V  AND  Till-:  MECHANISM   Ol    1  ^CHANGE. 


|115J  67 


hardly  requisite,  since  it  would  be  better  to 
obtain  possession  of  a  check  book,  and  then 
fill  up  checks  for  amounts  exceeding  the  de- 
posits in  the  banker's  hands.  Every  one  ac- 
cepting a  check  thus  receives  it  at  the  risk 
of  fraud  or  bankruptcy  on  the  part  of  the 
drawer.  There  is,  moreover,  the  possibility 
of  failure  of  the  bank  on  which  it  is  drawn  ; 
for  it  is  a  well-understood  point  of  law,  that  if 
the  holder  of  a  check  does  not  present  it  in 
"reasonable  time,"  that  is,  before  the  close 
of  business  hours  on  the  day  following  the  re- 
ceipt of  the  check,  he  loses  his  claim  against 
the  drawer,  if  the  bank  should  happen  to  fail. 
The  reason  obviously  is  that  the  drawer  loses 
the  deposit  which  he  left  in  the  banker's 
hands  to  meet  the  check,  and  should  not 
suffer  from  the  holder's  want  of  diligence. 

The  salutary  effect  ofAis  law  and  of  other 
conditions  is,  that  checks  do  not  circulate  in 
this  kingdom  in  place  of  money,  but  are  usu 
ally  presented  within  one  or  two  days  of  re- 
ceipt. Hence  they  come  to  serve  as  mere  in- 
struments of  transfer  of  money,  and  involve 
no  considerable  length  of  credit.  Nothing 
can  be  gained  by  holding  an  ordinary  check, 
for  there  is  no  interest,  and  something  may 
be  lost.  Beyond  the  mere  trouble  of  pre- 
sentation, then,  there  is  no  motive  to  prevent 
A  holder  from  at  once  getting  coin  or  bank- 
notes for  his  check  which,  though  paying  no 
interest,  are  safer.  Or,  still  better,  he  may 
deposit  the  sum  at  his  bankers,  get  a  low  in- 
terest in  the  meantime,  and  draw  a  new 
check  of  his  own  when  he  wishes  to  pay  the 
check  away  again.  Experience  shows  that 
the  latter  is  the  most  satisfactory  course,  the 
money  being  usually  safer  and  more  available 
in  the  hands  of  a  good  banker  than  else- 
where, and  usually  paying  interest  all  the 
time.  On  this  foundation  is  erected  the  ex- 
tensive system  of  payment  which  will  be  de- 
scribed in  the  next  chapter,  and  which  may 
be  called  the  Check  and  Clearing  System. 

There  are,  indeed,  many  varieties  of 
checks.  Bankers'  checks  are  those  drawn 
by  one  banker  upon  another,  and  are  used  as 
a  means  of  remittance.  If  both  the  bankers 
concerned  are  of  perfect  credit,  and  the  form 
and  signature  can  be  verified,  such  checks 
seem  to  me  to  be  in  no  way  inferior  to  bank- 
notes as  representative  money.  If  two  per- 
fectly well-known  banks  were  to  arrange  to 
draw  checks  upon  each  other  for  convenient 
even  amounts,  and  to  issue  these  to  their  cus- 
tomers, it  would  effect  a  successful  evasion  of 
vhe  law  against  the  unlimited  issue  of  notes. 
So  great  however  is  the  force  of  habit,  or  the 
respect  for  law,  that  no  such  attempt  is 
made,  and  bankers'  checks  are  presented  al- 
most as  promptly  as  any  others. 

Certified  checks,  as  employed  in  the  New 
York  trade,  are  a  still  nearer  approach  to  a 
bank-note,  for  they  are  checks  which  have 
been  marked  by  the  bankers  on  whom  they 
are  drawn,  as  sure  to  be  paid  on  presenta- 
tion. Either  the  banker  in  certifying  the 


check  has  funds  belonging  to  the  drawer 
which  he  can  retain  to  meet  it,  or  else  he 
pledges  his  own  credit  that  he  will  meet  the 
check  in  any  case.  Such  checks  are  really 
promissory  notes  of  the  banker,  and  I  can 
see  no  reasons  why  they  should  not  circulate 
as  freely  as  bank-notes,  except  that  they  are 
drawn  for  odd  sums,  and  present  few  safe- 
guards against  forgery.  The  checks  of  the 
Check  Bank,  which  will  be  subsequently 
considered  (Chapter  XXII.),  are  equivalent 
to  certified  checks,  as  they  cannot  be  issued 
except  against  deposits  which  are  retained 
until  the  check  is  presented. 

Of  late  years  the  practice  has  become  very 
general  of  making  checks  payable  to  order 
instead  of  to  bearer,  and  of  crossing  them 
so  as  to  necessitate  their  presentation  through 
a  banker.  The  order  may,  indeed,  be  dis- 
charged by  an  open  endorsement,  which 
renders  the  check  again  payable  to  bearer, 
but  there  remains  the  possibility  of  a  forged 
endorsement, concerning  which  difficult  points 
of  law  have  arisen.  A  general  crossing  need 
not  interfere  appreciably  with  the  circulation 
of  a  check,  but  when  crossed  specifically 
for  presentation  through  a  particular  bank, 
the  check  becomes  practically  an  order  to 
credit  a  particular  individual,  who  keeps  his 
account  in  that  bank,  with  the  sum  of  money. 

BILLS    OF    EXCHANGE. 

A  bill  of  exchange  is  an  order  to  a  person 
to  pay  money  to  the  legal  holder  of  the  docu- 
ment on  a  day  indicated  therein.  If  payable 
at  sight,  a  bill  does  not  apparently  dirfer 
from  a  check  or  draft  to  order,  except  that 
it  will  be  usually  drawn  upon  persons  of  less 
credit  than  well-known  bankers.  If  not 
payable  at  sight,  the  length  of  time  interven- 
ing between  the  day  named  for  payment  and 
the  day  of  issue  may  vary  from  a  day  or  two 
upward,  and  the  money  cannot  be  demanded 
in  the  meantime.  Hence,  a  bill  generally 
bears  interest,  or  rather  is  only  bought  at  such 
a  discount  as  will  enable  it  to  be  held  to 
maturity  without  loss.  To  estimate  the 
liability  of  loss,  some  estimate  must  be  formed 
of  the  rate  of  interest  likely  to  prevail  in  the 
meantime,  and  the  value  of  the  bill  will  thus 
vary  according  to  a  multitude  of  circum- 
stances. Bills  of  exchange  may  be  made 
payable  to  the  bearer,  but  as  a  general  rule 
they  are  payable  to  a  specified  person,  and 
transferred  by  endorsement  to  other  specified 
persons.  Thus,  every  party  concerned  with 
a  bill  incurs  a  certain  liability,  which  is  not 
removed  until  it  is  duly  paid.  In  several 
respects,  then,  a  bill  may  differ  from  coined 
money,  which  bears  no  interest,  and  dis- 
charges instead  of  creating  liability  when  ten- 
dered in  payment  of  debts. ' 

INTEREST-BEARING    DOCUMENTS. 

It  is  extraordinary  that  few  writers  on 
currency  have  remarked  the  deep  difference 
between  commercial  documents  which  bear 


68  [116] 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


interest  and  those  which  do  not.  On  this 
point  turns  the  possibility  of  their  forming 
representative  money.  For  it  is  an  essential 
characteristic  of  coin  that  it  yields  no  profit 
by  keeping  it  in  the  pocket  or  the  safe.  I 
may  be  obliged  to  keep  money  ready  to  pay 
debts,  but  in  the  meantime  I  lose  the  interest 
which  I  might  receive  by  investing  the  sum 
in  the  funds,  in  bills,  bonds,  or  even  as  a 
bank  deposit.  Hence  money  must  be  con- 
sidered as  a  commodity  which,  as  Chevalier 
says,  is  in  a  constant  state  of  supply  and  de- 
mand. Every  one  is  always  trying  to  part 
with  it  in  a  profitable  purchase,  and  keeps  as 
little  in  hand  as  possible.  The  same  is  even 
more  true  of  bank-notes,  checks,  circular 
notes,  bills  at  sight,  and  a  few  other  kinds 
of  documents,  all  of  which  are  payable  on 
demand  at  sny  moment,  so  that  no  amount 
of  interest  can  be  assigned  to  them.  Except 
so  far  as  the  payment  may  be  doubtful,  or 
the  possession  of  the  documents  may  involve 
the  holder  in  legal  difficulties,  these  docu- 
ments have  the  characteristics  of  coin,  and 
the  amount  held  is  kept  down  to  the  lowest 
convenient  figure.  Interest-bearing  docu- 
ments, on  the  contrary,  are  held  in  as  large 
quantities  as  possible,  because  the  longer 
they  are  held  the  more  interest  accrues.  It 
is  the  principal  business  of  every  banker  to 
hold  a  portfolio  full  of  good  bills,  which 
really  represent  the  investment  of  capital  in 
industry.  Government  bonds,  or  bonds 
issued  by  public  companies  and  corporations, 
do  not  differ  from  commercial  bills  except  in 
the  fact  that  they  have  very  long,  or  even 
interminable,  usance,  and  that  the  interest  is 
paid  at  definite  intervals.  Such  bonds  repre- 
sent the  sinking  of  capital  in  fixed  under- 
takings, and  are  therefore  held  as  property 
by  individual  investors.  They  may  be  bought 
and  sold  for  money,  but  are  not  money 
themselves.  They  rather  necessitate  than  re- 
place the  use  of  money,  since  currency  must 
have  been  paid  at  the  first  investment,  and  is 
repaid  by  degrees  at  the  periodical  terms 
fixed. 

A  number  of  schemists  have  urged  from 
time  to  time  that,  in  addition  to  our  ordinary 
currency,  there  ougat  to  be  an  interest-bearing 
currency.  The  first  small  issue  of  the  French 
assignats  bore  interest,  and  about  twelve 
years  ago  the  United  States  Government 
tried  a  similar"  experiment,  which  was  soon 
discontinued.  Persons  have  proposed  to 
coin  the  whole  National  Debt  into  money, 
so  that  instead  of  some  160  millions  of 
metallic  and  paper  currency  we  might  have 
more  nearly  a  thousand  millions.  Mr.  E. 
Hill  has  published  a  form  of  bank-note  en- 
titling the  holder  to  one  hundred  pounds  on 
demand,  and  to  interest  at  the  rate  of  3^ 
per  cent,  up  to  the  time  when  it  is  presented, 
the  amount  of  interest  being  tabularly  stated 
on  the  form.  It  is  obviously  impossible, 
however,  that  any  government  should  issue 
such  notes,  because  whenever  the  current 


rate  of  interest  rose  above  3  >£,  and  the  value 
of  the  note  accordingly  fell  below  par,  a 
profit  would  be  made  by  presenting  the  notes 
for  payment.  Thus  the  government  issuing 
such  notes  would  have  to  keep  a  large 
quantity  of  coin  in  reserve  to  meet  them,  and 
would  at  the  same  time  be  paying  interest  on 
the  whole  of  the  notes.  Thus  there  would 
be  a  loss  of  interest  upon  the  whole  reserve 
of  coin. 

The  English  government  has  rendered  the  Na- 
tional Debt  as  transferable  as  possible  by  au- 
thorizing, in  terms  of  the  Act  of  33  and  34,  Vic- 
toria, chapter  71,  the  issue  of  stock  certificates. 
These  certificates  resemble  the  bonds  of  the 
United  States  and  other  governments.  They 
have  coupons  for  the  payment  of  interest,  and 
when  not  filled  up  with  a  name  are  transfer- 
able by  delivery  like  bank  notes.  They  are 
issued  in  exchange  for  Three  per  Cent.  An- 
nuities for  even  sums  of  not  less  than  ^50 
and  not  more  than  .£1,000;  and  if  the  right  to 
annuity  could  be  passed  from  one  person  to 
another  as  currency,  these  certificates  would 
allow  of  its  being  done.  But  it  is  understood 
that  a  comparatively  small  amount  of  such 
certificates  has  ever  been  applied  for.  They 
are,  I  believe,  used  to  some  extent  by  bank- 
ers and  others,  who  have  to  hold  sums  of 
money  invested  in  the  funds  for  short  peri- 
ods, and  can  save  the  cost  of  transfers  by 
the  use  of  certificates.  The  public  at  large 
are  found  to  prefer  the  old  method  of  regis- 
tering their  stock  in  the  books  of  the  Bank  of 
England. 

DEFINITION   OF  MONEY.     ^ 

Much  ingenuity  has  been  spent  upon  at- 
tempts to  define  the  term  money,  and  puz- 
zling questions  have  arisen  as  to  the  precise 
kinds  of  credit  documents  which  are  to  be  in- 
cluded under  the  term .  Standard  legal  ten- 
der coin  of  full  weight  is  undoubtedly  money, 
and  as  convertible  legal  tender  bank-notes  are 
exactly  equivalent  to  the  coined  money  for 
which  they  may  at  any  moment  be  exchanged; 
it  has  often  been  considered  that  these  also 
may  be  included.  But  inconvertible  notes 
are  often  made  legal  tender  by  law,  and  can 
discharge  in  inland  trade  all  the  functions  of 
money.  Are  they  not  then  to  be  included  ? 
The  question  will  next  arise  whether  checks 
may  not  be  as  good  as  money. 

All  such  attempts  at  definition  seem  to  me  to 
involve  the  logical  blunder  of  supposing  that 
we  may,  by  settling  the  meaning  of  a  single 
word,  avoid  all  the  complex  differences  and 
various  conditions  of  many  things  each  re- 
quiring its  own  definition.  Bullion,  standard 
coin,  token  coin,  convertible  ar«d  inconverti- 
ble notes,  legal  tender  and  not  legal  tender, 
checks  of  several  kinds,  mercantile  bills, 
exchequer  bills,  stock  certificates,  etc.,  are 
all  things  capable  of  being  received  in  pay- 
ment of  a  debt,  if  the  debtor  is  willing  to  pay 
and  the  creditor  to  receive  them;  but  they 
are,  nevertheless,  different  kinds  of  things. 


MONEY  AND  THE  MECHANISM  OF  EXCHAMiK. 


[117]  69 


By  calling  some  money  and  some  not,  we  do 
not  save  ourselves  from  the  consideration  of 
their  complex  legal  and  economical  differ- 
ences. Bullion  is  evidently  not  coin,  but 
can  be  turned  into  it  at  little  or  no  cost,  and 
will  make  foreign  payments  almost  as  well  as 
coin.  Token  coins  are  not  standard  coins, 
and  will  not  make  foreign  payments,  but  are 
legal  tender  for  small  sums,  and  may  be 
readily  exchanged  for  standard  coin  at  little 
or  no  loss.  Bank  of  England  notes  are  not 
exactly  coin,  but  can  be  readily  turned  into 
coin  by  those  who  dwell  near  the  Bank  of 
England,  and  are  received  as  equivalent  to 
coin  by  other  persons.  Checks  are  not 
coin,  but  orders  to  receive  it  on  demand,  and 
are  valuable  in  proportion  to  the  probability 
that  the  sum  will  be  received.  Accepted 
bills  are  an  engagement  to  pay  coin  at  a  day 
named  ;  if  we  overlook  the  possible  failure  of 
the  acceptor  to  pay  them,  they  are,  as  it  were, 
deferred  money.  A  certificate  of  consoli- 
dated stock  entitles  the  holder  to  an  annuity, 
that  is,  to  quarterly  sums  of  money. 

We  get  back,  in  short,  to  that  with  which 
we  started.  Standard  legal  tender  coin  is 
that  in  which  all  commercial  transactions  and 
documents  are  expressed,  but  according  to 
infinitely  various  circumstances,  the  receipt 
of  the  money  is  more  or  less  deferred,  more 
or  less  involved  in  legal  complexities,  and 
also  variable  in  amount,  as  interest  is  or  is 
not  to  be  received  in  addition.  All  other 
commercial  property,  mortgage  deeds,  prefer- 
ence shares  and  bonds,  and  ordinary  shares, 
resolve  themselves  into  more  or  less  proba- 
oility  of  receiving  coin  at  future  dates  ;  and 
thus  we  pass  insensibly  from  the  golden  sov- 
ereign in  hand  to  the  most  flimsy  chance  of 
receiving  gold  which  is  still  like  the  bird  in 
the  bush. 

The  word  cash  is  used  with  exactly  the 
same  ambiguity  as  money.  Originally  cash 
meant  that  which  was  encaisse,  i.  e.t  put  into 
the  chest  or  till.  Strictly  speaking,  it  should 
consist  of  actual  specie,  and  the  word  is  used 
in  some  English  banks  to  include  only  coin 
of  the  realm.  But  I  find  by  actual  inquiry 
that  bank  cashiers  use  it  with  every  shade  of 
meaning.  Some  take  Bank  of  England  notes 
to  be  cash.  Good  checks  upon  a  bank  paid 
into  that  bank  are  evidently  as  good  as  cash. 
Others  go  so  far  as  to  include  checks  upon 
other  banks  of  the  same  town,  and  even 
country  bank-notes  are  sometimes  included 
in  cash.  The  question  is  evidently  one  of 
degree,  and  cannot  be  settled  except  by  the 
general  adoption  among  cashiers  of  some  one 
arbitrary  line  of  definition. 

In  ordinary  life  we  use  a  great  many 
words  with  a  total  disregard  of  logical  pre- 
cision. Who  shall  decide,  for  instance,  what 
objects  are  to  be  included  under  the  names 
building  and  house?  Let  the  reader  attempt 
to  decide  which  of  the  following  objects  is  to 
be  considered  a  house,  and  why? — namely, 
stables,  cow-houses,  conservatories,  sheds, 


lighthouses,  tents,  caravans,  hulks,  sentry, 
boxes,  ice-houses,  summer-houses,  and  par. 
ish  pounds.  The  difficulty  is  exactly  anal, 
ogous  to  that  of  deciding  what  is  money  or 
cash. 


CHAPTER  XX. 


BOOK     CREDIT    AND    THE     BANKING    SYSTEM. 

Considerable  economy  o  the  precious 
metals  arises,  as  we  have  seen,  from  passing 
about  pieces  of  paper  representing  gold  coin, 
instead  of  the  coin  itself.  But  a  far  more 
potent  source  of  economy  is  what  we  majr 
call  the  Check  and  Clearing  System,  where- 
by debts  are,  not  so  much  paid,  as  balanced 
off  against  each  other.  The  germ  of  the 
method  is  to  be  found  in  the  ordinary  prac- 
tice of  book  credit.  If  two  firms  have  fre- 
quent transactions  with  each  other,  alternate- 
ly buying  and  selling,  it  would  be  an  absurd 
waste  of  money  to  settle  each  debt  immedi- 
ately it  arose,  when,  in  a  few  days,  a  corre- 
sponding debt  might  arise  in  the  opposite  di- 
rection. Accordingly,  it  is  the  common  prac- 
tice for  firms  having  reciprocal  transactions, 
to  debit  and  credit  each  other  in  their  books 
with  the  debt  arising  out  of  each  transaction, 
and  only  to  make  a  cash  payment  when  the 
balance  happens  to  become  inconveniently 
great.  An  insurance  broker  is  one  who  acts 
as  a  middleman  between  the  owners  of  ships 
and  the  underwriters  who  insure  them  in 
shares.  He  has,  therefore,  to  make  many 
small  payments  to  underwriters,  for  the  pre- 
miums on  policies,  and  at  intervals  has  to 
receive  back  the  indemnity  for  any  insured 
vessel  which  has  been  lost.  It  is  the  com- 
mon practice  to  avoid  cash  payments  ;  the 
broker  credits  the  underwriter  with  the  pre- 
miums and  debits  him  with  losses,  and  only 
pays  or  receives  the  balance  when  large. 

To  represent  the  highly  complex  system  of 
book  credit  which  is  organized  by  the  bank- 
ers of  a  large  kingdom,  we  shall  have  to  em- 
ploy a  method  of  diagramatic  notation.  I 
will  therefore  remark  that  the  simplest  case 
or  type  of  book-credit  is  represented  by  the 
formula 

P Q. 

Each  of  the  letters,  P  and  Q,  indicates  a 
person  or  a  firm,  and  the  line  indicates  the 
existence  of  transactions  between  them. 
Only  in  special  cases,  however,  will  this  di- 
rect balancing  of  accounts  render  the  use  of 
cash  or  of  a  more  complex  system  unneces- 
sary. Generally  speaking,  there  will  be  a 
tendency  for  a  surplus  of  goods  to  pass  in 
one  direction,  so  that  money  must  pass  in 
the  opposite  direction.  The  manufacturer 
sells  to  the  wholesale  dealer,  the  latter  sells 
to  the  retailer,  and  the  retailer  to  the  con- 
sumer. By  the  intervention  of  the  banker,. 


70  .[118]  MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


however,  the  transactions  of  many  different 
individuals,  or  even  of  many  branches  of 
trade,  are  brought  to  a  focus,  and  a  large 
proportion  of  payments  can  be  balanced  off 
against  each  other. 

SINGLE  BANK   SYSTEM. 

To  obtain  a  clear  notion  of  the  way  in 
which  bankers  help  us  to  avoid  the  use  of 
money  as  the  medium  of  exchange,  we  must 
follow  up  the  rise  of  the  system  from  the 
simplest  case  to  the  complete  development 
of  the  complex  organization  now  existing  in 
the  United  Kingdom.  Let  us  imagine,  in 
the  first  place,  that  there  is  an  isolated  town 
having  no  appreciable  dealings  with  other 
parts  of  the  world,  and  possessing  only  a  sin- 
gle bank,  in  which  each  inhabitant  has  de- 
posited all  his  money.  If  any  person,  a,  then 
wishes  to  make  a  payment  to  b,  he  need  not 
go  to  his  banker,  draw  out  coin,  and  carry  it 
to  b,  but  may  hand  to  b  a  check  requiring  the 
banker  to  pay  the  coins  to  b,  if  needed.  But 
if  b  makes  payments  in  the  same  way,  he  will 
not  need  to  draw  out  any  coin.  It  would  be 
a  mere  formality  for  b  to  receive  the  coin  due 
from  a,  and  then  pay  it  back  over  the  counter 
to  the  credit  of  his  account  with  the  same 
banker.  The  payment  is  made  by  merely 
writing  the  sum  cf  money  to  the  debit  of  a's 
account.  If  b  wishes  to  make  another  pay- 
ment to  c,  a  similar  record  in  the  banker's 
ledger  will  accomplish  the  business.  However 
many  other  traders,  d,  e,  etc.,  there  may  be, 
their  mutual  transactions  may  be  settled  in 
the  same  way,  without  their  seeing  a  single 
coin.  We  may  represent  this  elementary 
banking  organization  by  the  following  dia- 
gram, 


it   is    requisite  to  consider  have  an  accoun 
with  one  or  the  other.    In  the  diagram, 


\\l/  \\// 


let  P  and  Q  be  the  two  bankers,  at  b,  c,  a 
being  customers  of  P,  and  q,  r,  s,  t,  cus- 
tomers of  Q.  Now  the  mutual  transactions 
of  a,  6,  c,  d  will,  as  before,  be  balanced  off 
in  the  books  of  P,  and  similarly  with  the 
customers  of  Q.  But  if  a  has  to  make  a 
payment  to  q.  the  operation  becomes  some- 
what more  complex.  He  draws  a  check 
upon  P,  and  hands  it  to  q,  who  may,  of 
course,  demand  the  coin  from  P.  Not  want- 
ing coin,  he  carries  the  check  to  his  own 
banker,  Q,  and  pays  it  into  his  account  in 
place  of  coin.  It  is  the  banker,  Q,  who 
will  now  have  to  present  the  check  upon  P, 
and  it  might  seem  as  if  the  use  of  coin  would 
be  ultimately  required.  There  will  be  other 
persons,  however,  making  payments  in  the 
town  in  the  same  manner,  and  the  probabil- 
ity is  very  great  that  some  of  these  will  result 
in  giving  P  checks  upon  Q,  and  some  in 
giving  Q  checks  upon  P.  The  two  bankers, 
then,  will  be  in  the  position  of  the  two  traders 
before  described,  who  have  a  running 
account.  At  the  worst  the  payment  to  be 
made  in  coin  will  be  only  the  balance  of 
what  is  due  in  opposite  directions ;  but  as 
this  balance  will  probably  tend  in  one  direc- 
tion one  day,  and  in  the  opposite  direction 
the  next  day,  the  balance  need  only  be  paid 
when  it  assumes  inconvenient  proportions. 

I    «ro    ft       9     9     * 


in  which  it  is  obvious  that  P  represents  the 
single  banker,  and  a,  b,  c,  d,  e  his  customers. 
The  deposit  banks  of  Amsterdam  and  Ham- 
burg form  perfect  illustrations  of  this  arrange- 
ment. 

So  long  as  we  regard  only  the  internal 
transactions  of  a  town,  then,  a  stationary 
amount  of  coin,  lying  untouched  in  the  bank, 
will  allow  the  whole  to  be  accomplished.  If 
the  traders  never  require  to  make  payments  at 
a  distance,  the  metallic  money  might  be  dis- 
pensed with  altogether.  But  since  any  of 
the  customers  «,  b,  c,  etc. ,  may  want  his 
money,  the  banker  ought  to  keep  at  least  as 
much  as  will  meet  possible  demands. 

SYSTEM  OF  TWO  BANKS. 

As  a  second  case,  let  us  suppose  that  there 
is  a  town  which  is  able  to  support  two  banks. 
Some  of  the  inhabitants  keep  their  money  in 
one  bank  and  some  in  the  other,  but  all  whom 


COMPLEX   BANK   SYSTEM. 

A  large  commercial  town  usually  possesses 
several  banks,  each  with  its  distinct  body  of 
customers,  The  mutual  transactions  of 
each  body  will,  as  before,  be  balanced  off 
in  the  books  of  this  common  bank,  but  the 
larger  part  of  the  transactions  will  be  cross 
ones,  resulting  in  a  claim  by  one  banker 
upon  another.  The  probability  is  very  great, 
indeed,  that  each  banker  will  have  to  receive, 
as  well  as  to  pay,  each  day ;  but  it  does  not 
follow  that  he  will  pay  to  the  same  as  those 
who  are  going  to  pay  to  him.  The  com- 
plexity of  relations  becomes  considerable  ; 

thus  among  fourteen  banks  there  are  *4  X  ~ 

2 

or  91  different  pairs  which  may  have  mutual 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


[119]  71 


claims,  and  among  fifty  banks  there  would  be 
no  less  than  1,225  pairs.  The  result  is,  that 
P  might  happen  to  have  a  considerable  bal- 
ance to  pay  toQ,  and  yet  might  be  going  to 
receive  about  the  same  sum  from  K  or  S. 
The  actual  carrying  about  of  coin  under 
such  circumstances  would  be  absurd,  be- 
cause a  manifest  extension  of  the  book-cred- 
it system  at  once  meets  the  difficulty.  The 
several  banks  need  only  agree  to  appoint,  as 
it  were,  a  bankers'  bank^  to  hold  a  portion  of 
the  cash  of  each  bank,  and  then  the  mutual 
indebtedness  may  be  balanced  off  just  as 
when  a  bank  acts  for  individuals.  In  the 
figure  we  see  four  banks,  P,  Q,  R,  S,  each 
with  its  own  body  of  customers,  but  brought 
into  connection  with  each  other  by  the  bank- 
ers' bank,  X.  P  need  not  now  send  a  clerk 
to  present  bundles  of  checks  upon  Q,  R, 
and  S,  but  can  pay  them  into  the  central 
bank,  X,  where  after  being  placed  to  the 
credit  of  P  and  sorted  out,  they  will  be 
joined  to  similar  parcels  of  checks  received 
from  Q,  R,  S,  and  finally  prtsented  at  the 
banks  upon  which  they  are  drawn.  Thus 
all  the  payments  made  by  checks  will  be  ef- 
fected without  the  use  of  coin,  just  as  if 
there  were  only  a  single  bank  in  the  town. 
What  each  bauk  has  to  pay  each  day  will 
usually  be  balanced  pretty  closely  by  what 
it  has  to  receive.  Such  balance  as  remains 
will  be  paid  by  a  transfer  in  the  books  of  X, 
the  bankers'  bank. 

It  is  not  precisely  true  that  there  is  in 
any  English  town  a  bankers'  bank,  which 
thus  arranges  the  payments  between  banks. 
The  accountants'  part  of  the  work  is  carried 
out  by  an  institution  called  the  Clearing 
House,  managed  by  a  committee  of  bankers, 
and  the  Bank  of  England  is  employed  to 
hold  the  deposits  of  the  bankers,  and  make 
transfers  which  close  the  transactions  of 
each  day.  The  organization  of  the  Clearing 
House  will  be  described  in  the  next  chapter. 

BRANCH  BANK  SYSTKM. 

It  is  impossible  to  avoid  perceiving  that 
the  organization  of  the  English  bank  system 
is  undergoing  a  complete  transformation,  and 
is  approximating  to  that  which  has  existed 
for  a  century  or  more  in  Scotland.  Instead 
of  a  great  number  of  small,  weak,  discon- 
nected banks,  there  is  arising,  by  amalgama- 
tion and  extinction  of  the  weaker  ones,  a 
moderate  number  of  important  banks,  each 
possessing  numerous  branches.  The  Scotch 
banks  have  long  had  many  branches,  and  at 
present  each  of  the  eleven  great,  banks  has  on 
an  average  78  branches,  the  lowest  number 
being  19,  and  the  highest  125.  Already  a 
few  of  the  English  banks  have  equally  exten- 
sive ramifications.  Thus  the  London  and 
County  Bank,  and  the  National  Provincial 
Bank,  which  have  especially  developed  the 
branch  system,  have  respectively  148  and  137 
branches  ;  the  Manchester  and  Liverpool 
District  Bank  has  50  branches  and  sub- 


branches.  The  Irish  Banks  also  adopt  the 
the  same  system,  and  the  National  Bank  of 
Ireland  has  about  114  branches  and  sub- 
branches.  It  is  interesting  to  observe  that  in 
Australia,  too,  the  banking  system  has  taken 
3  similar  form,  and  a  comparatively  small 
number  of  strong  banks,  such  as  the  Bank  of 
New  South  Wales,  or  the  Bank  of  New  Zea- 
land, leave  no  rising  village  without  its 
branch. 

Now,  the  close  connection  which  exists  be- 
tween the  head  office  and  each  of  the  branches 
of  an  extensive  bank  leads  to  a  great  clearing 
off  of  claims.  The  third  diagram  again 
serves  to  represent  this  relation,  X  being  the 
head  office,  P,  Q,  R,  S,  branch  banks,  and 
a,  b,  c,  etc.,  customers.  If  a  pay  m  with  a 
check  on  P.  the  check  will  be  paid  into  R, 
credited  to  tn,  forwarded  by  post  direct  to  P, 
and  debited  to  a.  The  head  office  being  in- 
formed of  this  transaction  in  the  usual  daily 
statement,  will  close  the  business  by  trans- 
ferring the  sum  from  the  account  of  P  to 
that  of  R.  Much  accountants'  work  seems 
to  arise,  but  it  is  work  of  mere  routine  which 
costs  little.  Cash  remittances  are  seldom 
necessary,  because  each  branch  settles  accounts 
only  with  the  head  office,  so  that  many  sums 
will  be  credited  and  debited  during  each 
week,  and  the  balance  will  usually  be  small. 
The  head  office,  in  fact,  acts  in  every  way 
ike  a  clearing  house,  or  bankers'  bank. 

The  question  naturally  arises,  indeed,  how 
will  the  branches  of  one  bank  transact  business 
with  those  of  another  bank?  The  solution, 
lowever,  is  simple  ;  for  unless  the  branches 
lappen  to  be  in  the  same  town,  or  for  other 
reason,  in  close  relation  with  each  other,  they 
will  communicate  through  their  head  offices. 
A  check  upon  any  branch  of  the  London  and 
County  Bank  received  by  a  branch  of  the 
National  Provincial  Bank,  will  be  presented 
through  the  head  office  of  the  latter  at  the 
Clearing  House  upon  the  head  office  of  the 
former. 

BANK   AGENCY   SYSTEM. 

Another  important  feature  of  the  banking 
system  is  the  extensive  organization  of 
agencies.  A  large  bank  has  various  business 
to  be  transacted  in  each  of  the  principal  com- 
mercial towns  of  the  kingdom,  and  if  it  has 
no  branches  in  these  towns  employs  a  banker 
in  each  town  to  act  as  its  agent.  This  agent- 
bank  collects  checks,  notes,  etc.,  payable  in 
the  district,  cashes  drafts  drawn  against 
them,  retires  bills  according  to  instructions, 
and  does  almost  all  that  a  branch  bank  would 
do,  the  main  difference  being  that  the  re- 
muneration for  this  work  consists  of  a  com- 
mission. Each  agent-bank  has  a  running 
account  with  its  principal,  so  that  to  a  certain 
extent  each  important  bank  and  its  agencies 
form  a  clearing  system  analogous  to  that  of 
a  head  bank  and  its  branches. 

LONDON   AGENCY   SYSTEM. 

By  insensible  degrees  there  has  grown  up 


T'J  {120]  MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


vn  England  an  all-comprehensive  and  most 
perfect  system  of  relations  between  the  pro- 
vincial and  London  city  banks.  Every 
b  inker  in  the  United  Kingdom,  without,  I 
believe,  any  exception,  employs  one  or  other 
of  the  great  London  city  banks  to  act  as 
agent.  There  are  twenty-six  city  clearing 
banks  which  thus  undertake  agencies,  and  on 
an  average  each  of  these  banks  represents  at 
least  twelve  country  banks  ;  but  the  number 
varies  very  much,  and  some  country  banks 
have  two  London  agent  banks. 

This  agency  system  leads  at  once  to  a 
clearing  of  transactions,  because,  if  any  two 
country  banks  have  the  same  London  agent, 
all  their  mutual  adjustments  of  accounts  can 
be  made  by  transfers  in  the  books  of  the 
agent.  The  third  diagram  on  p.  70  applies 
once  more,  and  X  represents  the  city  agent, 
having  running  accounts  with  P,  Q.  R,  S, 
the  country  banks.  The  whole  of  the  cus- 
tomers of  all  the  banks,  having  the  same 
London  agent,  are  thus  brought  into  close 
relation,  though  they  may  live  in  the  most 
distant  parts  of  the  country.  Each  of  the 
city  banks  may  be  regarded  as  a  bankers' 
bank  and  a  clearing  house  on  a  small  scale. 

COUNTRY    CLEARING    SYSTEM. 

Only  one  further  step  is  required  to  com- 
plete the  system  of  connections  between  each 
bank  in  the  kingdom  and  all  other  banks. 
Every  country  bank,  as  we  have  seen,  has  a 
running  account  with  some  city  bank,  and 
all  the  city  banks  daily  settle  transactions 
with  each  other  through  the  Clearing  House. 
It  follows  that  a  payment  from  any  part  of 
the  country  to  any  other  part  can  be  accom- 
plished through  London.  In  the  following 
diagram, 


A      t      *      *      /     0     I 

\l/  W 


m    n 


T      5      i 


B 


^ —      CB 

let  P,  Q,  R,  be  country  banks  having 
the  London  agent,  X,  and  U,  V,1  W, 
other  country  banks  having  the  London 
agent,  Y.  If  a,  a  customer  of  P,  wishes  to 
pay  r,  a  customer  of  U,  he  transmits  by  post 
a  check  upon  his  banker,  P.  The  receiver, 
r,  pays  it  into  his  account  with  U,  who, 
having  no  direct  communication  with  P,  for- 
ward it  to  Y,  who  presents  it  through  the 
Clearing  House  on  X,  who  debits  it  to  P,  and 
forwards  it  by  the  next  post.  Nothing  can 
exceed  the  simplicity  and  perfection  of  this 
arrangement. 

It  will  be  readily  seen,  too,  that  sums  of 
money  passing  between  London   banks,   or 


rather  cleared  off  in  the  Lombard  Street  Clear- 
ing House,  will  frequently  be  the  balances  of 
extensive  running  accounts  between  country 
banks  and  their  agents  and  correspondents. 
So  long  as  the  balance  of  accounts  between 
any  two  banks  does  not  assume  large  propor- 
tions, it  need  not  be  paid  in  cash  at  all,  ex- 
cept for  special  reasons.  When  a  balance 
has  to  be  paid,  and  the  banks  happen  to  have 
the  same  London  agent,  it  is  only  requisite 
for  the  debtor  bank  to  direct  their  London 
agent  to  transfer  so  much  money  to  the  credit 
of  the  other  country  bank.  If  any  have  dif- 
ferent London  agents,  and  P,  in  the  last  dia- 
gram, desires  to  pay  a  balance  to  U,  it  is  done 
by  directing  X  to  credit  Y,  the  agent  of  U. 
The  credit  note  effecting  this  payment  passes 
through  the  Clearing  House  amid  a  mass  of 
other  documents  representing  payments  in 
one  direction  or  the  other,  and  will  in  general 
become  an  insignificant  item  in  the  general 
clearing.  If  it  can  be  said  to  be  paid  in  cash 
at  all,  it  is  in  the  form  of  a  final  transfer  in 
the  books  of  the  Bank  of  England,  as  we 
shall  see.  Great  as  are  the  transactions  daily 
settled  in  the  London  Clearing  House,  they 
are  after  all  only  those  which  have  not  been 
previously  cleared  off  bv  any  more  direct  com- 
munication, and  they  often  represent  the  bal- 
ances of  multitudinous  transactions  whicfc 
never  pass  through  London  at  all. 

CHAPTER  XXI. 


THE  CLEARING-HOUSE  SYSTEM. 

By  means  of  the  London  agency  system, 

the  banking  transactions  of  the  country  are, 

as  we  have  seen,  brought  to  a  focus  in  the 

city  of  London.    The 

u  v  V!  g  g  z  settlement  of  the  re- 
\  |  /  \  I  /  ciprocal  claims  of  the 
\  I  /  \  I  /  twenty-six  principal 
city  banks  is  therefore 
a  business  of  the  ut- 
most magnitude  and 
importance,  represent- 
ing as  it  does  the 
completion  of  the 
business  of  no  small 
part  of  the  world.  In 
a  room  of  moderate  dimensions,  entered  from 
a  narrow  passage  running  from  the  post- 
office  in  King  William  Street  across  to  Lom- 
bard Street,  debts  to  the  average  amount  of 
nearly  twenty  millions  sterling  per  day  are 
liquidated  without  the  use  of  a  single  coin  or 
bank-note.  In  the  classic  financial  neighbor- 
hood of  Lombard  Street,  and  even  in  this 
very  chamber,  the  system  of  paper  commerce 
has  been  brought  nearly  to  perfection.  The 
early  history  of  the  London  Clearing  House 
is  buried  in  obscurity,  and  it  is  much  to  be 
desired  that  those  who  are  acquainted  with 
the  principal  incidents  in  its  progress  should 
put  them  on  record  before  it  is  too  late. 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


| 121]  73 


The  Clearing  House  appears  to  have  been 
first  created  just  a  century  ago.  About  the 
year  1775  a  few  of  the  city  bankers  hired  a 
room  where  their  clerks  could  meet  to  ex- 
change notes  and  bills,  and  settle  their  mutual 
debts.  The  society  was  of  the  nature  of  a 
strictly  private  club,  the  public  knowing 
nothing  about  it,  and  the  transactions  being 
conducted  in  perfect  secrecy.  Mr.  Gilbart 
tells  us  that,  even  in  this  form,  it  was  re- 
garded as  a  questionable  innovation,  and 
some  of  the  principal  bankers  refused  to  have 
anything  to  do  with  it.  By  degrees,  however, 
the  convenience  of  the  arrangement  made  it- 
self apparent,  more  bankers  were  admitted  to 
the  society,  and  a  distinct  committee  and  set 
of  rules  were  formed  for  its  management. 
Although  it  remains  to  the  present  day  a 
private  and  voluntary  association,  unchar- 
tered,  and  in  fact  unknown  to  the  law,  the 
Clearing  House  has  steadily  grown  in  import- 
ance and  in  the  publicity  of  its  proceedings. 

Several  important  extensions  of  the  clear- 
ing work  have  been  made  in  the  last  twenty- 
five  years.  After  the  rise  of  the  London 
Joint  Stock  Banks,  subsequent  to  1833,  they 
were  for  a  long  time  refused  admittance  to 
the  Clearing  House  ;  but  in  June,  1854,  they 
were  at  last  allowed  to  join  the  association. 
The  Bank  of  England  long  remained  entirely 
outside  of  the  confederation,  but  more  re- 
cently it  has  become  a  member,  so  far  as  re- 
gards the  presentation  of  claims  upon  other 
banks.  The  West  End  banks  of  London  are 
still  beyond  its  sphere,  partly,  perhaps,  be- 
cause their  distance  stands  in  the  way  of  the 
working  of  the  system.  They  are  thus  in  the 
position  of  provincial  banks,  and  can  clear 
through  city  agents  like  provincial  banks. 

Before  the  year  1858  the  business  of  the 
Clearing  House  was  restricted  to  the  ex- 
change of  checks  and  bills  actually  drawn  on 
the  clearing  bankers.  Country  bankers  re- 
ceiving checks  drawn  upon  other  distant 
country  banks  were  in  the  habit  of  remitting 
them  direct  by  post,  the  paying  bank  ef- 
fecting the  payment  by  directing  their  Lon- 
don banker  to  pay  the  amount  to  the  London 
agent  of  the  receiving  bank.  In  the  year 
1858,  at  the  suggestion  of  Mr.  William  Gil- 
lett,  but  chiefly  by  the  exertions  of  Sir  John 
Lubbock,  the  country  clearing  system  was 
organized.  The  country  banker,  instead  of 
posting  many  checks  every  day  to  all  parts 
of  the  kingdom,  sends  them  in  a  single  par- 
cel to  his  London  agent,  to  be  presented 
through  the  Clearing  House  on  the  London 
agents  of  the  paying  banks.  This  exchange 
is  made,  as  we  shall  see,  at  different  hours  of 
the  day,  but  the  results  are  summed  up  in  the 
general  balance  of  the  day's  transactions. 

TRANSACTION    OF    BUSINESS    AT  THE  LONDON 
CLEARING    HOUSE. 

There  are  three  clearings  daily  at  the  Lom- 
bard Street  House.  The  morning  clearing 
op*ns  on  ordinary  days  at  10.30;  drafts  are 


received  not  later  than  II,  and  the  work 
must  be  closed  at  noon.  The  country  clear- 
ing then  begins,  drafts  being  received  until 
12  30,  and  the  clearing  closed  at  2.15.  The 
heaviest  clearing,  however,  is  that  of  the  af- 
ternoon, which  begins  at  2.30.  The  bustle 
and  turmoil  of  the  work  grow  to  a  climax  at 
four  o'clock,  the  runners  rushing  in  with  the 
last  parcels  of  drafts,  up  to  the  moment  when 
the  door  is  finally  closed.  On  the  fourth 
day  of  each  month,  when  the  heariest  work 
occurs,  the  hours  are  extended,  the  House 
opening  at  nine  o'clock. 

The  Clearing  House  is  a  plain  oblong 
room,  with  rows  of  desks  in  compartments 
round  three  sides,  and  down  the  middle.  A 
small  office  for  the  two  superintendents  stands 
at  one  end.  Each  bank  sends  as  many  clerks 
to  the  House  as  may  be  requisite  for  the- 
rapid  completion  of  the  work,  and  some 
banks  have  as  many  as  six  clerks.  The 
checks  and  bills  to  be  presented  by  any  one 
clearing  bank,  say  the  Alliance  Bank,  upon 
any  other  clearing  banker,  are  entered  at 
home  in  the  "Out-clearing  book,"  and  are 
then  sorted  into  twenty-five  parcels,  one  of 
which  is  to  be  presented  on  each  of  the  other 
clearing  banks.  On  reaching  the  Clearing 
House,  these  parcels  are  distributed  round 
the  room  to  the  desks  of  the  clerks  represent- 
ing the  several  paying  banks,  who  imme- 
diately begin  to  enter  them  in  the  "  In-clear- 
ing books  "  in  columns  bearing  at  the  head 
the  name  of  the  presenting  bank.  After  be- 
ing entered,  the  drafts  are,  as  soon  as  possi- 
ble, forwarded  to  the  banking  house  for  ex- 
amination and  entry  in  the  bank  books.  Any 
checks  or  bills  refused  payment  are  called 
"  returns,"  and  can  generally  be  sent  back  to 
the  Clearing  House  the  same  day,  and  en- 
tered again  as  a  reverse  claim  by  the  bank 
dishonoring  them  on  the  banks  which  pre- 
sented them.  At  the  close  of  the  day  the 
clerks  of  the  Alliance  Bank  are  able  to  add 
up  the  whole  of  the  claims  which  have  been 
made  upon  them  by  the  other  twenty-five 
banks,  and  they  learn  from  the  out-clearing 
book  the  amount  of  the  claims  which  the  Al- 
liance Bank  is  making  on  other  banks.  The 
difference  is  the  balance  which  the  Alliance 
Bank  has  either  to  pay  or  receive  as  the  case 
may  be.  These  balances  being  .communi- 
cated to  the  superintendents  of  the  House  are 
by  them  inserted  in  a  kind  of  balance  sheet. 
When  finally  added  up,  the  debtor  aiul 
creditor  sides  of  the  sheet  should  exactly 
balance,  because  every  penny  to  be  received 
by  one  bank  must  be  paid  by  another. 

In  former  years  the  balance  due  by  or  to 
each  bank  was  paid  in  bank  notes,  and  in 
the  year  1839,  average  daily  transactions  to 
the  amount  of  about  three  millions  were 
cleared  by  the  use  of  ^200,000  in  bank- 
notes, and  ,£20  in  coin,  or  about  one- 
fifteenth  part  of  the  debts  liquidated.  More 
recently  a  suggestion  of  the  late  Charles. 
Babbage  was  carried  into  effect,  and  the  bal- 


74  [122] 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


ances  were  paid  by  drafts  upon  the  Bank  of 
England,  in  which  bank  each  city  banker  de- 
posits a  large  part  of  his  spare  cash. 

One  ingenious  minor  arrangement  in  the 
London  Clearing  House  is  the  division  of 
the  whole  list  of  twenty-six  bankers  into 
three  groups,  in  such  a  way  that  one  of  the 
clearing  clerks  of  the  Alliance  Bank  corre- 
sponds with  one  group  of  the  other  banks,  a 
second  clerk  with  the  second  group  and  so 
on.  Thus  when  a  comparison  or  correction 
of  accounts  is  made  between  any  two  banks, 
:*:  is  known  precisely  which  clerk  must  an- 
swer to  the  questions  called  across  the  room. 

Although  the  rapid  and  effective  way  in 
which  the  settlement  is  carried  out  in  the 
London  Clearing  House  must  always  excite 
surprise,  it  is  quite  open  to  question  whether 
i improvements  are  not  needed.  The  room  does 
not  seem  to  be  large  enough  for  the  conven- 
ient and  wholesome  transaction  of  such  vast 
and  increasing  work.  Although  some  banks 
employ  as  many  as  six  clerks,  the  pressure  is 
very  great  at  times.  The  facility  which  these 
•clerks  acquire  by  practice  in  making  and  add- 
ing up  entries  is  very  great,  but  the  intense 
head  work  performed  against  time,  in  an  at- 
mosphere far  from  pure,  and  in  the  midst  of 
bustle  and  noise  arising  from  the  corrections 
shouted  from  one  clerk  to  another  across  the 
room,  must  be  exceedingly  trying.  Brain 
disease  is  occasionally  the  consequence. 

The  question  must  arise,  too,  whether  the 
privilege  of  clearing  is  to  be  forever  restrict- 
ed to  twenty-six  principal  city  banks,  when 
there  are  certainly  many  other  banks  existing 
or  being  founded  which  need  the  convenience 
of  access  to  the  House.  In  New  York  the 
clearing  circle,  as  we  shall  see,  is  much  wider. 
At  present  the  minor  London  banks  are 
forced  to  employ  the  clearing  bankers  as 
agents,  or  to  forego  the  advantages  of  the 
Clearing  House  altogether.  It  is  hardly  just 
or  possible  that  a  narrow  monoply  of  the  sort 
should  be  maintained  forever. 

MANCHESTER   CLEARING   HOUSE. 

Though  the  London  Clearing  House  is  en- 
tirely the  birthplace  of  the  system,  and  the 
spot  where  the  work  has  been  organized  on 
the  largest  scale,  it  does  not  follow  that  it  is 
in  every  respect  the  most  suitable  for  imita- 
tion in  commercial  towns  of  less  magnitude. 
At  least  two  English  provincial  towns,  Man- 
chester and  Newcastle,  have  established  local 
clearing  houses.  The  bankers  of  Liverpool, 
also,  I  am  told,  have  recently  arranged  a  pri- 
vate system  of  clearing  houses  among  them- 
selves; and  it  is  possible  that  the  bankers  of 
other  towns  may  have  taken  a  similar  step 
without  the  fact  becoming  generally  known. 
Through  the  kindness  of  some  members  of 
the  committee,  I  have  received  full  informa- 
tion as  to  the  working  of  the  Manchester 
Clearing  House.  The  business  seems  to  have 
been  arranged  chiefly,  I  believe,  by  Mr.  E. 
"W.  Nix,  with  great  success,  and  it  may  be 


useful  to  describe  the  arrangements  in  detail, 
as  they  would  be  very  suitable  for  adoption 
in  many  English,  foreign,  or  colonial  towns, 
which  will  doubtless  before  long  establish 
clearing  houses. 

In  the  Manchester  Clearing  House  the 
work  is  performed  entirely  upon  loose  forms, 
and  not  in  account  books,  as  in  London. 
Though  these  forms  may  seem  rather  numer- 
ous and  elaborate,  they  greatly  assist  in  the 
accurate  and  orderly  settlement  of  the  balance. 
The  clearing  clerk,  before  leaving  his  bank, 
sorts  out  the  drafts,  which  he  has  to  deliver, 
into  thirteen  parcels,  one  for  each  of  the 
thirteen  other  banks,  and  then  fills  up  thir- 
teen lists,  one  for  each  parcel,  in  the  Form 
No.  i  shown  below,  each  check  being  rep- 
resented only  by  the  amount  of  money  ex- 
pressed in  it.  A  copy  of  the  list  is  entered 
in  one  of  the  books  of  the  bank  provided  fot 
the  purpose. 


Form  Aie.  I. 


.2 

§ 

G 


Adding  up  each  such  list,  he  inserts  the 
totals  in  one  of  the  left  hand  columns  of  the 
Form  No.  2.  He  thus  obtains  a  complete 
abstract  of  all  the  claims  he  holds  upon  other 
banks,  and  adding  up  the  columns  ascertains 
the  aggregate  "  Out-clearing." 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


[123] 


fttm  Nf.  a. 


MANCHESTER  BANK 


.187 


OUT. 

IN 

^ 

First 
Clearing. 

Second 
Clearing. 

First 
Clearing. 

Second 
Clearing. 

Adelphi 

Bank 

Consolidated 

County 

Cunliffc's 

District 

Heywood 

Joint  Stock 

King  Street 

Lancashire 

National  Provincial 

Salford 

Sewell 

Union 

Total 
Balance 

— 

- 

On  reaching  the  Clearing  House,  the  clerk 
walks  round  the  room  and  lays  on  the  desk 
belonging  to  each  other  bank  the  parcel  of 
checks  and  the  corresponding  list  already  de- 
scribed. In  the  course  of  a  little  time  thir- 
teen similar  parcels  and  lists  will  be  laid  on 


his  own  desk  by  the  clerks  of  other  banks, 
and  as  they  come  in  he  compares  the  list 
with  the  checks,  verifies  the  addition,  and  if 
all  be  correct,  enters  the  amount  in  one  of 
the  right  hand  columns  of  the  second  form, 
against  the  name  of  the  bank  presenting  the 


76  [124J  MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


drafts.  These  parcels  are  called  the  "7»- 
cletring"  and  represent  all  the  claims  of 
other  banks  upon  the  one  in  question,  so  that 
when  all  the  thirteen  amounts  are  entered, 
and  the  columns  added  up,  the  clerk  learns 
the  aggregate  which  his  bank  will  have  to 
pay. 

At  Manchester  two  clearings  are  held  each 
day.  The  first  at  11.15  A.M.  is  a  preliminary 
one  only,  and  no  payment  of  balances  is 
made.  As  soon  as  the  columns  for  the  first 
clearing  are  filled  up,  the  clerk  returns  to  his 
bank  with  the  in-clearing  parcel  of  checks 
and  drafts  presented  upon  the  bank.  These 
documents  are  immediately  examined  by  the 
proper  officials  in  order  to  detect  any  which 
may  be  irregular,  fraudulent,  or,  for  want  of 
funds  or  other  reasons,  must  be  dishonored. 
At  the  Clearing  House  the  clerk  has  already 
made  a  first  rough  inspection,  and  returned 
any  documents  which  were  obviously  irregu- 
lar, but  no  draft  is  considered  to  be  finally 
accepted  until  one  hour  after  the  clearing  is 
over.  The  returned  drafts  are  comparatively 
few,  and,  as  soon  as  detected,  are  forwarded 
direct  to  the  bank  presenting  them. 

The  second  clearing  takes  place  at  2.15 
P.M.  and  is  conducted  just  as  in  the  morning. 
The  second  columns  of  the  out-  and  in-clear- 
ing, in  Form  2,  having  been  filled  and 
summed  up,  the  totals  of  the  first  columns 
are  added  in,  and  the  clerk  learns  the  sum 
that  has  to  be  paid,  and  at  the  same  time  to 
be  received,  by  his  bank.  The  difference  is 
the  balance  which  he  has  either  to  receive  or 
pay.  These  totals  and  the  balance  he  copies 
into  the  following  brief  form,  No.  3,  which 
he  hands  to  the  inspector  of  the  Clearing 
House : 

Form  No.  3. 


<*    <s? 


The  inspector  now  proceeds  to  verify  the 
balances  by  inserting  the  amounts  in  Form 
No.  7,  in  an  abbreviated  form,  only  four  of 
the  names  of  the  banks  being  inserted,  to 
save  space.  In  these  forms  the  names  of 
the  banks  are  given  in  the  briefest  manner, 
and  the  Branch  Bank  of  England  is  called 
simply  "Bank." 

Form  No,    . 


It  is  evident  that  the  total  &rhich  some  of 
the  banks  have  to  receive  on  balance  must 
equal  what  the  others  have  to  pay,  because 
every  check  has  been  added  in  twice,  once 
in  favor  of,  and  once  against,  some  bank.  If 
the  debtor  and  creditor  columns  of  the 
seventh  form,  being  added  up,  fail  to  bal- 
ance, some  error  of  account  must  have  been 
committed,  and  all  the  work  is  submitted  to 
careful  re-examination  until  the  error  is  de- 
tected. When  all  is  correct,  it  remains  only 
to  effect  the  payments,  which  is  done  by 
means  of  credit  and  debit  notes,  directing 
transfers  in  the  books  of  the  Branch  Bank  of 
England,  to  or  from  the  accounts  of  the 
clearing  bankers.  The  payments  are  made, 
indeed,  to  and  from  the  Clearing  House,  as 
a  kind  of  fictitious  entity  ;  but  as  its  pay- 
ments and  receipts  each  day  exactly  balance, 
the  Clearing  House  requires  no  separate 
ledger  account,  except  for  small  currcofc 
expenses,  or  inconsiderable  errors. 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE.  [125]  77 


To  effect  the  transfer  the  clerk  of  each 
paying  bank  fills  up  the  double  form,  No.  4, 
as  follows : 

Form  No.  4. 


made,  as  a  receipt   for  the  sum  on  behalf  of 
the  Clearing  House. 

When,  on  the  other  hand,  the  balance  is  in 
favor  of  a  bank,  Form  No.  5,  printed  an 
green  paper  for  the  sake  of  easy  diecrimina- 
tion.  comes  into  use.  It  sufficiently  explains 


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be  signed,  and  then  paid 
England.     It  directs  the 

There  remains   tb«n  only  the  question  of 

cashier  to  credit  the  Clearing  House  with  the 
balance,  and    debit  the  sum  to  the  paying 
bank  in  question.     The  authorized  official  of 
the  Bank  of  England  signs  the  corresponding 
fcna  on  the  right  hand,  when  the  payment  is 

the  returned  checks.     Even  these  do  not  re- 
quire cash   payment.      The  balance  at  the 
close  of   the  day  is  paid   only  provisionally, 
and    those    checks  which   have  to  be  dis- 
honored  are  returned  within  an  hour  to  thf 

78  [126]  MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


bank  presenting  them.  Unless  the  irregu 
larities  be  explained  away  or  removed,  th 
presenting  cashier  then  signs  the  followin 
form,  No.  6,  which  is  an  acknowledgmen 
that  so  much  money  too  much  was  receive 
by  him  at  the  last  clearing.  This  form  i 
included  by  the  bank  dishonoring  the  checks 
in  its  out  clearing  parcel,  and  the  matter  i 
rectified  in  the  balance  of  the  next  clearing. 

form  No.  6. 


I 

!•«' 

H 

t-.-s 


The  settlement  in  the  Manchester  Clearing 
House  is  often  effected  in  less  time  than  it 
would  take  to  read  this  account  of  the 

•  method,  and  the  work  goes  on  with  noiseless 
ease,  strongly  contrasting  with  the  turmoil 
of  the  London  House.  No  doubt,  the 
amounts  cleared  are  comparatively  insignifi- 
cant in  Manchester,  the  average  daily  sums 
being,  in  the  years  1872,  1873,  and  1874,  re- 
spectively ^226,160,  ^"237,150,  and  ^"247,- 

«  930,  or  little  more  than  one-hundredth  part 
of  the  daily  transactions  in  the  Lombard 
Street  House. 

The  Manchester  Clearing  House  is  man- 
aged by  a  committee  of  bankers,  of  which  the 
chief  agent  of  the  Bank  of  England  in  Man- 
chester is  the  chairman, 'and  the  superintend- 
ence of  the  clearing  work  is  conducted  by  an 
official  of  the  Bank  of  England.  Thus  the 
Bank,  while  naturally  taking  precedence, 

j   harmoniously    co-operates    with    the    local 

'    bankers. 


NEW    YORK    CLEARING    HOUSE. 

The  New  York  Clearing  House  was  estab- 
lished in  October,  1853,  and  has  become  a 
most  important  institution,  embracing  59 
banks,  as  compared  with  26  in  London,  and 
settling  transactions  hardly,  if  at  all,  inferior 
in  amount  to  those  of  the  London  house. 
The  general  method  of  settling  the  business 
is  necessarily  much  the  same  as  that  already 
described,  but  it  seems  to  be  in  some  respects 
better  arranged  than  in  London.  The  work 
is  carried  on  in  a  fine  large  Exchange  Room, 
and  there  is  proper  accommodation  for  the 
manager  and  hisxclerks,  instead  of  the  small 
jlass  box  in  which  the  inspectors  sit  in  the 
Lombard  Street  room. 

Each  New  York  bank  has  one  settling 
clerk  in  the  Exchange  Room,  besides  a  mes- 
senger, who  brings  and  delivers  the  parcels 
of  checks  and  bills,  The  settling  clerks  sit 
n  a  series  of  desks  arranged  in  an  oval  form 
n  the  middle  of  the  spacious  room,  and  the 
exchanges  are  effected  by  an  equal  number 
f  messengers  simultaneously  walking  round 
he  desks,  delivering  the  parcels  of  "  out- 
learing,"  and  receiving  those  of  "  in-clear- 
ng,"  or  as  they  are  called  in  New  York  the 
Credit  and  Debit  Exchanges.  An  account  of 
he  institution  will  be  found  in  Gibbon's  work 
n  "  The  Banks  of  New  York."  There  are- 
>aid  to  be  no  less  than  fifteen  provincial 
:learing-houses  in  the  principal  cities  of  the 
Jnited  States,  so  that  the  clearing  system 
would  seem  to  be  more  developed  there  than 
n  the  United  Kingdom. 

EXTENSION    OF   THE   CLEARING    SYSTEM. 

Until  within  the  last  few  years  there 
xisted  only  two  bankers'  clearing  houses, 
hose  of  Lombard  street  and  New  York,  but 
much  progress  has  recently  been  made  in  ex- 
ending  a  similar  system  to  other  places,  and 
ven  to  other  branches  of  business.  The 
Manchester  Clearing  House  was  established 
n  July,  1872,  and  Newcastle  has  a  similar 
stablishment.  On  the  continent  only  a 
ingle  city  has  yet  adopted  the  method.  In 
'aris  about  eighteen  bankers  have  formed  an 
ssociation,  called  a  "  Chambre  des  Com  pen - 
ations,"  which  is  located  in  the  Place  de  la 
Jourse,  and  balances  the  reciprocal  claims  of 
icse  firms  much  in  the  manner  of  the  English 

earing  houses.  In  France,  Germany  and 
ther  continental  countries  the  use  of  the 
anker's  check  is  much  less  developed  than  in 

ngland  and  America.  In  Germany  a  per- 
on  wishing  to  remit  a  hundred  pounds  will 
ften  collect  the  actual  coins,  seal  them  up  in 

bag  with  five  seals,  and  register  them  at  the 
ost  office.  Thanks  to  the  excellent  system 
f  government  Posies  existing  in  Germany, 
lis  method  of  remittance  is  sufficiencly  safe, 
ut  it  is  evident  that  where  the  monetary 
rrangements  of  a  country  are  of  such  a  kind 
icre  is  no  need  of  a  clearing  house. 

The  method  of  balancing  claims  needs  by 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


[127]  71 


»o  means  to  be  restricted  to  the  business  of 
banking.  As,  indeed,  the  monetary  trans- 
actions of  any  locality  come  to  a  focus  in  the 
banks,  the  principal  clearing  will  always  be 
in  the  hands  of  bankers.  But  wherever  a  set 
of  traders  have  numerous  reciprocal  claims, 
they  may  find  it  desirable  to  set  up  their  own 
clearing  house.  As  long  ago  as  1842  it 
occurred  to  Robert  Stephenson  and  Mr.  K. 
Morison,  that  the  principle  of  the  City  Clear- 
ing House  might  be  advantageously  applied 
to  settling  the  very  complicated  accounts 
arising  between  railway  companies,  which 
have  through  booking  arrangements.  The 
work  constantly  carried  on  in  the  great  house 
full  of  accountants  at  Euston  Square  is  vastly 
more  complicated  and  various  than  that 
of  a  bankers'  clearing  house  ;  but  the  final 
result  is  to  ascertain  how  much  each  railway 
company  is  indebted  to  each  other  one.  The 
balance  due  to  or  from  each  company  is  then 
paid  by  a  transfer  at  the  bankers. 

Within  the  last  twelve  months  an  attempt 
has  been  made,  unsuccessfully  as  yet,  to  in- 
troduce the  general  use  of  checks  into  Liver- 
pool, where  great  sums  of  money  are  con- 
stantly passing,  especially  in  the  cotton 
market.  For  reasons  which  it  would  be 
difficult  to  trace  out  satisfactorily,  the  Liver- 
pool menhants  and  bankers  have  never 
adopted  t)  e  use  of  checks  to  the  same  extent 
and  in  the  same  way  as  in  other  commercial 
ter^a.  }  lazij  firms  in  Liverpool  still  refuse 
to  receive  payment  by  checks,  and  only  a  year 
or  two  »'[Q  it  was  a  common  practice  for  a 

A. «^<;r  firm  to  send  a  clerk  to  Liverpool 

by  railway  with  a  bundle  of  bank-notes  to 
make  payments.  At  present,  as  I  am  in- 
formd,  bank  bills  payable  at  sight,  and  for- 
warded by  post,  yji e  substituted  for  Bank  of 
England  notes. 

A  Liverpool  *tock  or  cotton  broker,  wish- 
ing to  make  «.  payment,  draws  money  out  of 
his  bank  in  notes  and  gold,  and  his  clerks 
carry  it  about  the  town.  Every  evening  a 
number  of  small  cash-boxes,  containing  large 
•ams  of  money,  are  deposited  at  a  well-known 
silversmith's  shop,  opposite  the  Town  Hall-, 
for  safe  custody  during  the  night.  A  great 
amount  of  capital  is  thus  kept  lying  idle,  and 
it  is  surprising  that  the  bankers  do  not  se- 
cure this  sum,  as  an  addition  to  their  deposits, 
by  removing  every  obstacle.  At  present  the 
practice  is  to  charge  one-eighth  or  one-fourth 
per  cent,  commission,  whereas  the  actual  cost 
of  the  accountants'  work  by  which  the  bank 
transfers  are  accomplished  is  almost  nominal 
in  regard  to  large  transactions. 

An  important  extension  of  the  clearing 
principle  was  affected  by  the  establishment, 
in  1874,  of  the  London  Stock  Exchange 
Clearing  House,  which  undertakes  to  clear, 
Bot  sums  of  money,  but  quantities  of  stock. 
As  stock  brokers  settle  their  transactions 
only  once  a  fortnight,  or  in  consoles  once  a 
month,  it  naturally  arises  that,  in  the  inter- 
»ais,  tne  same  broker  will  usually  hare 


bought  the  same  kind  of  stock  for  one  client 
and  sold  it  for  another.  The  very  same  stock 
may  have  passed  through  several  different 
hands,  and  the  same  brokers  may  have  had 
reciprocal  dealings  with  eacn  other.  Instead, 
then,  of  actually  making  transfers  of  stock 
for  each  transaction,  and  paying  by  checks 
which  greatly  swell  the  business  of  the  Lom- 
bard Street  Clearing  House  on  settling  days, 
a  plan  has  been  arranged,  according  to  which 
each  member  of  the  Clearing  House  pre- 
pares a  statement  of  the  net  amount  of  each 
stock  which  he  has  to  receive  from  or  deliver 
to  each  other  member.  The  manager  of  the 
house,  after  verifying  these  accounts,  which 
should  balance  in  the  aggregate,  directs  the 
debtor  members  to  transfer  qualities  of  stock 
to  the  creditor  members  in  such  a  way  as  to 
close  all  the  transactions.  It  will  be  noticed 
that,  for  pretty  obvious  reasons,  the  transfer* 
are  made  in  the  stock  exchange,  directly  fron* 
broker  to  broker  and  not  to  the  manager  of 
the  Clearing  1  £ouse,  as  in  banking  transac- 
tions. A  separate  clearing  has,  of  course,  to 
be  made  in  each  kind  of  stock  It  is  found 
that  the  quantities  actually  transferred  do  not 
exceed  10  per  cent,  of  the  whole  transactions 
cleared,  and  the  checks  drawn  are  diminished 
on  settling  days  as  much  as  ten  millions 
sterling. 

Still  more  recently  the  Cotton  Brokers'  As- 
sociation  of  London,  although  uuable  to  ap- 
ply the  system  of  clearing  as  yet  to  their 
money  transactions,  have  arranged  a  clearing 
system  for  the  settlement  of  business  con- 
nected with  the  sales  of  cotton  "to  arrive." 
Under  the  new  arrangement  the  first  seller 
and  the  last  buyer  come  into  contact,  and  all 
intemediate  business,  which  sometimes  oc- 
casioned much  dispute  und  delay  from  con- 
tracts involving  many  middle-men,  will  be, 
as  it  were,  canceled  by  the  Clearing  House. 

The  business,  indeed,  is  being  extended,  so 
that  all  contracts,  declarations,  and  payments 
will  be  effected  through  the  agency  of  the 
association. 

It  may  very  well  admit  of  question  whether 
we  have  at  all  reached  the  limit  of  the  advan- 
tageous application  of  the  clearing  principle. 
From  banker's  transactions  it  has  been  ex- 
tended to  railways,  stock  exchange,  and  cot- 
ton broker's  business.  It  is  conceivable  that 
any  other  body  of  merchants,  brokers,  pub- 
lishers, or  others  who  have  frequent  pecuniary 
claims  upon  each  other,  might  have  a  clearing 
meeting  once  or  twice  a  week.  Suggestions 
to  this  effect  have  already  been  made,  and  I 
am  told  that  in  the  Glasgow  iron  market,  a 
settlement  day  for  the  clearing  of  mutual 
transactions  has  been  established. 

ADVANTAGES  OF  THE   CHECK  AND  CLEARING 
SYSTEM. 

Returning  to  the  subject  of  the  bankers' 
Clearing  Houses,  it  is  to  be  remarked  con* 
cerning  the  vast  system  of  relations  whicfc 
now  exists  between  English  banks,  that  it 


80  [128]  MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


luts  grown  spontaneously,  oninvented,  un- 
authorized by  the  legislature,  and  only  recog- 
nized by  the  judges  when  firmly  established 
-as  a  matter  of  business  custom.  No  Act  of 
Parliament  has  been  passed  to  facilitate  the 
-operations  of  clearing,  and  it  is  only  by  an 
understanding  between  the  banks,  that  the 
presentation  of  checks  and  bills  through  the 
Clearing  House,  or  their  settlement  by  the 
payment  of  a  balance,  is  regarded  as  legally 
valid. 

The  advantages  of  the  system  are  evi- 
dently of  enormous  magnitude.  All  the 
larger  payments  are  made  with  a  minimum 
of  risk,  loss  of  time,  trouble,  or  use 
'Of  the  precious  metals.  While  the 
check  representing  a  payment  is  travel- 
ing about  the  country,  the"  money  which  it 
-Is  transferring  is  reposing  in  the  vaults  of 
'•some  bank,  or  rather,  not  being  needed  in 
the  operation  at  all,  is  lent  or  sent  out  of  the 
country,  so  that  its  interest  is  saved.  We 
found  in  p.  165  that  the  loss  of  interest  upon 
4he  metallic  money  now  circulating  or  stored 
asp  in  the  United  Kingdom,  amounts  to  be- 
tween four  and  five  millions  annually.  If 
payments  were  now  made  by  coin  only, many 
Hmes  as  much  metallic  money  would  be 
needed. 

The  security  with  which  the  payments  are 
effected  is  also  an  element  of  importance. 
Specie  when  transmitted  in  large  sums,  is 
always  a  temptation  to  thieves,  and  has 
usually  to  be  accompanied  by  one  or  more 
guards.  Through  the  agency  of  banks, 
whether  by  crossed  checks  or  credit  notes, 
the  largest  payments  may  be  made  with  al- 
most absolute  immunity  from  risk.  The 
checks,  bills,  and  other  documents  trans- 
ferred in  the  clearing  houses  are,  as  a  general 
rule,  so  crossed  or  endorsed  as  to  be  of  no 
value  to  any  one  but  the  legal  owners,  and  in 
any  case  are  regarded  by  thieves  as  "  duffer," 
with  which  they  dare  not  meddle. 

PROPORTION  OF  CASH  PAYMENTtS. 

It  is  surprising  to  find  to  what  an  extent 
9aper  documents  have  replaced  coins  as  a 
medium  of  exchange  in  some  of  the  princi- 
pal centres  of  business.  In  the  Statistical 
Journal  lot  September,  1865,  Sir  J.  Lubbock 
published  some  particulars  concerning  the 
business  of  his  bank  during  the  last  few  days 
of  1864.  Transactions  to  the  amount  of 
,£23, 000,000  were  effected  by  the  use  of  coin 
and  other  documents,  as  shown  in  the  follow- 
ing statement: 

Per  Cent. 

Checks  and  Bills  passed  through  the 
Clearing  House 70.8 

Checks  and  Bills  not  cleared 

Bank  of  England  Notes 

Coin 

Bank-Etote* . ............ 


IOO.O 

The  sums  of  aoaey  paid  I*  by  town  cos* 


tomers  amounted  to  ^19,000,000,  and 
analysed  gave  the  foliowii  g  results: 


Checks  and  Bills- 

Bank  of  England  Note*......., 

Country  Bank-notes 

Coin 


PerCe*. 
.    96.8 
.       2. 2 

2 


It  is  not  for  a  moment  to  be  supposed  that 
these  figures  represent  the  average  use  of 
coin  in  banking  transactions.  The  propo*- 
tional  amounts  of  different  kinds  of  money 
and  commercial  documents  used  in  different 
parts  of  the  country,  in  different  trades,  or 
in  banks  of  different  size  and  character  vary 
widely.  It  is  much  to  be  desired  that  bank- 
crs  and  others  who  have  the  facts  before 
them  should  publish  more  copious  informa- 
tion on  the  subject.  In  Manchester  the  use 
of  Bank  of  England  notes  appears  to  be 
much  more  extensive  than  in  London.  Mr. 
R.  H.  Inglis  Palgrave  gave  in  the  Statistical 
Journalist  March,  1873  (p.  86),  an  estimate 
prepared  for  him  by  Mr.  Langton,  the  Man- 
aging Director  of  the  Manchester  and  Sal- 
ford  Bank,  of  the  proportion  of  cash  payments 
made  in  that  bank.  It  appears  that  coin  and 
notes  formed  53  per  cent.of  the  total  turn  -over 
in  1859,  42  per  cent,  in  i864,  and  only  31 
per  cent,  in  1872,  so  that  a  rapid  decrease 
has  been  going  on.  But  we  find  that  in  1873 
the  amount  of  notes  was  still  large,  the  turn- 
over of  customers'  accounts  being  thus  com- 
posed: 


Checks,  Bills,  etc..... 

Bank-notes 

Coin 


PerCent. 

68 

........    27 

5 

IOO 

I  have  endeavored  to  form  some  notion  of 
the  comparative  amounts  of  checks  and  bill* 
which  are  cleared  off  at  successive  points  in 
the  organization  of  the  banking  system.  It 
is  very  desirable  that  we  should  learn  what 
proportion  the  transactions  of  the  Clearing 
House  bear  to  the  whole  transactions  of  the 
banks  of  the  kingdom.  There  would  not  be 
much  difficulty  in  forming  a  fair  estimate  if 
we  had  from  one  or  more  banks  in  each  of 
the  principal  towns  a  statement  of  the  com- 
parative amounts  of  checks  dealt  with  in 
various  manners.  According  to  information 
kindly  furnished  to  me  by  the  authorities  of 
one  of  the  principal  banks  of  Manchester,  I 
find  that,  during  the  months  July  to  October, 
1874,  the  checks  and  bills  on  demand  pre- 
sented on  or  through  the  bank  were  disposed 
of  as  follows: 

Per  Cent. 
Checks  paid  in  Coin  and  Bank-notes 

over  the  Counter .» - 

Checks  on  Selves  paid  to  Credit  of 

Account 25*4 

Checks  presented  through  Manchester 

Clearing- House ..........—.,....   22*1 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE.  [120]  81 


IVr  rent. 

Checks  and  Bills  on  demand  on  Lon- 
don presented  through  London 
Clearing-House io'8 

Checks  on  Country  Bankers  pre- 
sented through  the  London  Clear- 
ing House 3*5 

Checks  on  Country  Bankers  presented 
direct '. 3'6 


100*0 

Although  considerable  trouble  has  been 
sptnt  in  the  preparation  of  this  account,  it 
seems  doubtful  whether  the  items  are  com- 
plete and  correct,  and  I  give  it  more  as  a 
specimen  of  the  kind  of  information  which  is 
much  wanted  than  as  a  reliable  statement. 

CASES  TO  WHICH  THE  CLEARING  SYSTEM  IS 
INAPPLICABLE. 

It  will  now  be  sufficiently  apparent  that,  so 
long  as  trade  is  reciprocal,  the  check  and 
clearing  system  can  arrange  all  exchanges 
without  the  use  of  coin.  The  values  of  goods 
are  estimated  and  expressed  in  terms  of  gold, 
which  acts  as  the  co.nmon  denominator  of 
value,  but  metallic  money  ceases  to  be  the 
medium  of  exchange.  The  banking  organi- 
zation effects  what  I  have  heard  Mr.  W. 
Langton  describe  as  a  restoration  of  barter. 
But  it  happens  in  some  cases  that  the  trans- 
actions are  not  reciprocal,  »and  cannot  be 
made  to  balance.  In  certain  trades  there  is  a 
permanent  set  of  the  goods  in  one  direction. 
In  the  Manchester  cotton  trade,  for  instance, 
the  manufacturers,  in  purchasing  cotton  from 
the  Liverpool  merchants,  pay  with  cash  or 
short  credits  The  goods,  when  completed, 
are  often  shipped  again  at  Liverpool  for 
foreign  consignees  at  long  credits,  but  are 
not  generally  purchased  by  the  Liverpool 
merchants.  Consequently,  while  the  Man- 
chester manufacturer  owes  the  Liverpool 
merchant  for  the  whole  cost  of  the  raw 
material,  and  for  the  shipping  charges  and 
freights  upon  the  goods  sent  abroad,  there 
are  no  equivalent  claims  of  Manchester 
merchants  against  Liverpool.  The  foreign 
consignees  of  the  goods  pay  for  them  by  bills 
upon  London.  Now,  if  the  Manchester 
manufacturers  held  their  funds  in  Manchester, 
and  the  Liverpool  merchants  their  funds  in 
Liverpool,  there  would 'have  to  be  a  constant 
current  of  money  from  London  to  Manchester, 
and  from  Manchester  to  Liverpool,  whence  it 
would  go  abroad  to  pay  for  the  raw  material. 
This  inconvenient  state  of  things  is  remedied 
to  a  certain  extent,  as  we  shall  see  in  Chapter 
XXIII.,  by  making  London  the  headquarters 
and  clearing-house  both  of  home  and  foreign 
transactions. 

But  there  is  always  a  liability  that  claims 
expres  ed  in  metallic  money,  and  actually 
capable  of  being  demanded  in  that  shape  at 
the  option  of  the  owner,  will  sometimes  be 
pressed.  In  certain  states  of  trade,  or  under 
certain  contingent  circumstances,  the  holders 


of  checks  require  gold,  and  bankers  who 
have  become  accustomed  to  consider  metallic 
reserves  as  almost  superfluous,  find  them- 
selves suddenly  in  a  difficult  position.  Such, 
as  we  shall  see  in  Chapter  XXIV.,  is  thereat 
cause  of  the  present  instability  of  the  English 
money  market. 

CHAPTER    XXII. 


THE  CHECK    BANK. 

THE  Check  and  Clearing  System,  so  far  as 
we  have  hitherto  considered  it,  is  mainly  re- 
stncted  to  the  arrangement  of  considerable 
payments. '  No  one  can  enjoy  its  advantages 
unless  he  keeps  a  banking  account,  and  for 
this  purpose  he  must  be  able  to  command  a 
certain  sum  of  money,  and  must  have  a 
sufficiently  good  position  and  credit  to  be 
entrusted  by  a  banker  with  a  check  book. 
The  result  is  that  the  larger  part  of  the  popula- 
tion is  entirely  outside  the  banking  system, 
and  must  either  use  coin,  postage  stamps  or 
post-office  orders  in  making  payments. 

A  very  ingenious  attempt  is  now  being 
made  to  extend  the  area  of  banking  to  the 
masses  by  the  institution  of  the  Check  Bank. 
When  preparing  materials  for  this  book,  I 
was  so  much  struck  by  the  way  in  which  this 
new  bank  seems  to  be  adapted  to  complete 
the  check  and  clearing  system  in  a  downward 
direction,  that  I  applied  to  Mr.  James  Hertz, 
the  able  inventor  of  the  scheme,  for  informa- 
tion upon  the  subject,  and  have  been  enabled 
to  inquire  minutely  into  it. 

The  weak  point  of  the  present  ordinary 
check  book  is,  that  a  person  once  getting  a 
book  full  of  blank  checks,  can  fill  them  up 
for  any  amounts,  irrespective  of  the  balance 
against  which  they  are  supposed  to  be  drawn. 
Here  is  an  opening  for  easy  fraud,  if  checks 
were  generally  received  from  strangers  with- 
out inquiry.  The  Check  Bank  proceeds  on 
the  new  principle  of  issuing  checks  which 
can  be  filled  up  only  to  limited  amounts,  as 
shown  by  printed  and  indelible  perforated 
notices  upon  the  forms.  These  checks,  too, 
are  only  to  be  had  in  exchange  for  the  ut- 
most sum  for  which  they  can  be  drawn, 
which  sum  is  retained  as  a  deposit  until  each 
corresponding  check  has  been  presented. 
It  follows  that  each  check,  when  duly  filled 
up  and  signed  by  the  owner,  is  as  good  as  a 
bank-note  issued  against  a  documentary  re- 
serve. It  is  true  that  check  books  or  forms 
may  be  lost  or  purl  ;ined,  and  then  fraudu- 
ently  signed  and  issued  ;  but,  being  drawn 
to  order  and  crossed,  these  documents  are 
very  dangerous  to  meddle  with  in  a  criminal 
manner,  and,  in  the  only  instance  in  which 
raud  has  yet  been  attempted,  swift  punish- 
ment followrd. 

RELATION  OF  THE  CHECK  BANK  TO  OTHER 
BANKS. 

We  have  seen  how  much  has  been  accom- 
plished by  establishing  relations  between. 


82  [130] 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


banks,  as  branches,  agents,  or  correspondents 
of  each  other.  The  Check  Bank  carries 
out  a  similar  system  to  the  utmost  extent  by 
establishing  relations  with  almost  all  the 
banks  of  the  United  Kingdom,  as  well  as 
with  most  foreign  banks  of  importance.  Al- 
ready 984  English,  Irish,  or  Scotch  banks, 
have  entered  into  relations  with  the  Check 
Bank,  and  596  colonial  or  foreign  banks  cash 
the  checks.  One  advantage  of  this  ar- 
rangement is,  that  the  sphere  of  the  check 
system  can  be  greatly  extended  without  any 
equal  increase  of  trouble  and  risk.  When- 
ever a  bank  opens  a  new  account  with  an 
individnal,  that  account  has  to  be  kept  apart 
in  the  ledger,  and  constantly  watched.  But 
a  bank  can  sell  Check  Bank  checks  to  any 
amount,  without  opening  separate  accounts 
with  the  purchasers,  and  may  also  pay  such 
checks  when  presented  without  risk.  The 
Check  Bank  thus  aims  at  becoming  a  great 
institution  of  accountants,  operating  for  the 
most  part  through  other  banks,  but  relieving 
them  of  much  of  the  risk  and  trouble  of 
small  transactions.  The  Bank  of  England 
is  a  bankers'  bank  in  the  sense  that  it  holds 
the  reserves  of  other  banks,  and  makes  those 
final  payments  of  cash  which  close  the  gen- 
eral balance  of  transactions.  The  Check 
Bank  seems  to  be  a  bankers'  bank  in  the  op- 
posite sense  of  making  deposits  in  all  other 
banks  and  employing  them  as  agents. 

A  peculiar  feature  of  the  Check  Bank  is 
that  it  entirely  abstains  from  using,  or  even 
holding,  the  money  deposited.  All  money 
received  for  check  books  is  left  in  the  hands 
of  the  bankers,  through  whom  they  are 
issued,  or  transferred  to  other  bankers,  as 
may  be  needed  for  meeting  the  checks  pre- 
sented. The  interest  paid  by  these  bankers 
will  be  the  source  of  profit,  and  as  the  money 
thus  lies  in  the  care  of  the  most  wealthy  and 
reputable  firms  in  the  kingdom,  it  could  not 
be  lost  in  any  appreciable  quantity,  except  by 
the  break-down  of  the  whole  banking  system 
of  the  country.  It  would  hardly  be  true  to 
say  that  these  checks  correspond  to  notes 
issued  on  the  deposit  of  government  funds, 
because  each  agent-bank  can  use  at  its  own 
discretion  the  portion  of  the  funds  of  the 
Check  Bank  in  its  possession.  Neverthe- 
less, as  the  portion  in  the  hands  of  any  one 
fcank  will  usually  be  a  small  fraction  of  the 
whole,  and  there  is,  moreover,  a  guarantee 
fund  of  consols  in  the  background,  the  sys- 
tem of  issue  is  more  closely  analogous  to  that 
of  a  documentary  reserve  than  any  other. 

THE  CHECK  BANK  AS  A  MONETARY  AGENT. 

The  Check  Bank  appears  to  aim  at  becom- 
ing the  medium  forthe  accomplishment  of  an 
immense  mass  of  small  payments,  Small 
pensions  and  annuities,  small  dividends, 
small  disbursements  by  officers  of  depart- 
ments, by  agents,  clerks,  or  even  domestic 
servants  are  made  through  it.  A  book  of 


the  Check  Bank  checks  can  be  safely  trusted 
to  almost  any  servant  or  a^ent  who  can 
write,  and  the  check  when  presented  forms  a 
record  of  the  way  in  which  he  has  applied  the 
money.  No  one  can  venture  in  like  manner 
to  give  signed  blank  checks  to  a  servant,  as 
they  may  be  filled  up  for  unlimited  amounts, 
and  the  Check  Bank  checks  are  evidently 
better  than  a  sum  of  metallic  money,  which 
may  be  more  readily  misapplied,  purloined, 
or  lost. 

The  recipient  of  such  checks  finds  them 
one  of  the  most  convenient  possible  forms  of 
remittance,  because  they  will  be  cashed  by 
almost  any  banker,  and  will  therefore  be  re- 
ceived  as  cash  by  any  person  who  has  acquired 
sufficient  knowledge  of  their  nature  Thus 
the  check  bank  seems  to  be  capable  of  replac- 
ing with  great  advantage  the  money-order 
system  of  the  English  Po*t-Office. 

To  procure  a  post-office  order  it  is  requisite 
to  apply  at  an  office  and  wait  while  certain 
forms  are  being  filled  up.  A  definite  office 
of  payment  must  be  selected,  and  the  re- 
ceiver of  the  order  can  obfain  payment,  as  a 
general  rule,  only  by  allying  personally  at 
the  office,  and  giving  the  name  of  the  sender. 
Even  if  a  person  cannot  afford  to  purchase  a 
book  of  Check  Bank  checks,  he  can,  in 
towns  where  agencies  are  established  for  the 
purpose,  buy  single  checks  filled  up  for  any 
odd  sum  with  less  formality  than  at  the  post- 
office,  and  these  checks  are  payable  not  at 
one  office,  but  at  almost  any  bank  in  the 
United  Kingdom  and  in  most  foreign  towns. 
They  can  afterward  be  restricted  in  payment 
if  desired,  to  any  particular  bank.  The  cost 
of  remittance  by  checks  will  on  the  average 
be  lower  than  by  money  orders,  since  the 
Post-Office  makes  charges  for  inland  orders, 
increasing  from  one  penny  for  sums  under 
ten  shillings  to  one  shilling  for  a  ^10  order, 
with  much  higher  charges  for  orders  to 
be  paid  in  certain  colonies  or  foreign  coun- 
tries. The  Check  Bank  check  costs  only- 
one  penny  and  one-fifth  of  a  penny  in 
excess  of  the  sum  remitted,  and  of  this  charge 
the  penny  is  for  the  government  stamp  duty 
and  represents  so  much  public  revenue. 

The  government  can  have  no  reason  for 
opposing  the  Check  Bank,  because  if  success- 
ful  it  must  earn  for  the  Chancellor  of  the  Ex- 
chequer a  large  annual  revenue.  The  money- 
order  system,  on  the  other  hand,  in  spite  of 
the  higher  charges,  is  understood  to  yield  no 
profit,  and  is  rather  a  burden  upon  the  de- 
partment. It  is  said  that  the  issue  of  every 
money  order  involves  the  filling  up  of  eight 
or  nine  forms,  and  the  amount  of  labor  ren- 
dered requisite  swallows  up  the  revenue.  It 
is  a  very  striking  instance  of  the  comparative 
inefficiency  of  government  industry,  except  in. 
special  cases,  that  a  single  banking  company 
can  bring  into  use  a  form  of  remittance  avail- 
able in  all  parts  of  the  world,  and  far  cheaper 
than  post-office  orders,  and  yet  pay  duty  up- 
on their  transactions. 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


\l*l\  83 


The  Check  Bank  also  aims  -t  becoming  a 
collecting  as  well  as  a  paying  Agency.  Any 
public  institution  needing  to  collect  a  sub- 
scription, for  instance,  ha.:  only  to  procure  a 
"paying-in"  form,  or  credit  note,  and  the 
snm  inserted  therein  will  be  received  by  any 
of  the  numerous  banks  in  relation.  Thus 
small  debts  and  subscriptions  may  be  readily 
collected  without  trouble  or  expense  in  any 
part  of  the  country. 

PAYMKNT  OK  WAUKS  KV  CHECKS. 

.The  managers  of  the  Check  Bank  hope  to 
substitute  their  checks  for  the  coin  now  used 
by  manufacturers  in  payment  of  wages.  If 
this  could  be  accomplished  it  would  be  con- 
venient rather  than  otherwise  to  bankers, who 
arc  called  upon  to  furnish  large  sums  in  gold 
and  silver  coin,  and  have  the  trouble  and  cost 
of  holding  and  continuing  a  sufficient  stock. 
Now,  if  a  master  in  payxig  his  men  present- 
ed them  with  small  checks,  or,  perhaps  better 
still,  with  checks  for  even  sums,  and  the  bal- 
ance in  silver,  the  checks  would  be  cashed  by 
shopkeepers,  and  would  be  deposited  by  them 
in  the  banks,  or  might  even  be  bought  back 
in  large  sums  by  the  masterafpr  further  use. 
It  was  at  one  time  the  practMLof  great  rail- 
Way  contractors  to  issue  talljMZhecks  in  the 
form  of  one,  two,  or  five  shilling' cards,  which 
were  paid  to  their  workmen,  and  circulated 
among  the  publicans  and  tradesmen  of  the 
neighborhood,  until  taken  back  by  the  con- 
tractor in  wholesale.  Such  checks  constituted 
true  representative  money,  but  would  be  of 
doubtful  legality.  The  Check  Bank  checks 
might  serve  the  same  purpose,  and  have  been 
declared  legal,  but  it  is  yet  very  doubtful 
how  far  the  wholesome  practice  of  imme- 
diately presenting  ordinary  checks  will  stand 
in  the  way  of  the  continued  circulation  of 
other  checks,  for  which  there  is  no  need  of 
immediate  presentation.  Time  after  time  we 
have  found  that  habit  and  custom  exercise  an 
immense  and  very  unmanageable  influence  in 
monetary  affairs,  and  it  will  probably  take  a 
long  time  to  teach  the  public  to  look  upon  a 
check  as  a  safe  document  to  keep. 

THE  CHECK  BANK  AS  A  SAVINGS  BANK. 

Already  the  Check  Bank  serves  as  a  sav- 
ings bank  into  which  persons  may  put  sur- 
plus money  for  security,  receiving  as  an  ac- 
knowledgment the  check  forms  by  which  it  can 
be  drawn  out  or  paid  away  with  ease.  No 
interest,  however,  is  paid  on  such  deposits. 
It  seems  to  me,  however,  that  the  bank,  if 
successful  in  its  present  aims,  might  readily 
become  the  most  admirable  of  savings  banks. 
Instead  of  issuing  checks  payable  at  any 
moment,  it  might  issue  through  its  agent- 
banks,  deposit  receipts,  bills,  or  what  comes 
to  much  the  same  thing,  post-dated  checks, 
the  interest  to  be  paid  at  the  time  of  deposit 
as  a  discount  at  the  rate  of  two  or  two-and-a- 
half  per  cent.  This  receipt  could  be  re- 
tained, transferred  by  endorsement,  or  again 


discounted  by  the  Check  Bank.  If  retained 
until  maturity  it  would  become  payable  like  a 
check  at  any  bank  in  relation  with  the  Check 
Hank.  The  money  deposited  in  this  way 
might  be  invested  in  consols  at  three  and  one- 
fourth  per  cent.,  and  the  cost  of  the  docu- 
ments and  accountants'  work  being  slight, 
might  leave  a  fair  margin  of  profit 

The  Post-Office  Savings  Bank  system  as 
established  by  ^tr.  Gladstone  is  an  admirable 
institution  ;  it  has  been  very  successful,  and 
has  done  great  service  in  increasing  provi- 
dence. But  it  is  troublesome  and  costly  in 
working,  and  leaves  no  profit  to  the  State. 
Already  the  Scottish  banks  serve  almost  in 
the  capacity  of  saving  banks  by  receiving 
small  fixed  deposit*. ;  and  it  is  well  worthy  of 
consideration  whether,  by  the  assistance  of 
the  Check  Bank,  almost  all  the  English  banks 
might  not  be  converted  into  savings  banks,  to 
the  advantage  of  every  one. 

RESULTS    OF    THE    CHECK  BANK  SYSTEM. 

I  have  thought  it  quite  suitable  to  this 
book  to  enter  somewhat  minutely  into  the 
actual  and  possible  work  done  by  the  Check 
Bank,  because,  if  successful,  the  institution 
opens  an  indefinite  sphere  for  financial  im- 
provement. The  institution  is,  indeed,  at 
present  a  mere  experiment,  undertaken  at  the 
risk  of  the  shareholders,  and  iV  oan  only  suc- 
ceed by  offering  conveniences  to  the  public 
and  the  body  of  bankers.  It  may  succeed  in 
some  of  its  schemes,  and  not  in  others,  but 
in  any  case  it  will  tend  to  replace  coin  pay- 
ments by  check  payments,  to  be  balanced  off 
in  the  general  London  clearing.  The  profits 
of  the  bank  depend  upon  a  very  small  charge 
of  one-fifth  of  a  penny  for  each  check  and 
the  interest  on  deposits.  The  amount  of 
deposits  remaining  undrawn  depends  upon 
three  circumstances  :  (»)  the  time  before  the 
check  is  utilized  ;  (2)  the  time  it  is  in  circula- 
tion, or  traveling  about,  and  (3)  the  difference 
between  the  sum  drawn  and  that  deposited. 
The  average  duration  of  circulation,  I  am  in- 
formed, was  lately  ten  days,  but  many  checks 
have  already  been  out  a  year. 

I  should  add  that,  in  describing  with  some 
detail  the 'operations  of  the  Check  Bank,  I 
have  no  interest  in  the  success  of  the  institu- 
tion other  than  a  strictly  scientific  interest. 
In  any  case  it  is  a  most  ingenious  innovation, 
and  if  successful  cannot  fail  to  benefit  the 
community  in  a  high  degree,  adding  a  new 
feature  to  a  banking  system  already  wonder* 
fully  organized. 


CHAPTER  XXIII. 

FOREIGN   BILLS   OF   EXCHANGE. 

In  early  times  foreign  trade  consisted  im 
the  direct  exchange  of  commodities.  A 
caravan  set  out  with  a  variety  of  manufact- 


84  [132]  MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


tired  articles  across  the  deserts  of  Arabia 
or  Sahara,  and  came  back  with  ivory,  spices, 
and  other  valuable  raw  produce  obtained  by 
barter.  In  later  times  the  merchant  loaded 
his  own  ship  and  sent  her  forth  on  an  advent- 
ure, trusting  that  his  ship-master  would  sell 
the  cargo  to  advantage,  and,  with  the  pro- 
ceeds, bring  back  another  cargo  to  be  sold  to 
great  profit  at  home.  Trade  was  thus  evi- 
dently reciprocal  and  what  was  sent  out  paid 
f  01  what  was  brought  back,  so  that  little  or 
no  money  was  kept  idle  in  the  mean  time. 

Wherever  this  direct  reciprocal  exchange 
did  not  exist  it  was^iecessary  either  to  trans- 
mit metallic  money,  or  to  devise  some  mode 
of  transferring  debts.  NoV  the  transmissi  m 
of  money  not  only  causes  the  loss  of  inter- 
est during  the  interval  of  transit,  but  leads 
to  the  expense  of  guarding  it,  and  the  liabil- 
ity of  total  loss.  Many  centuries  ago,  ac- 
cordingly, it  was  discovered  that  the  use  of 
paper  documents  would  economize  if  not 
altogether  render  needless,  the  use  of  me- 
tallic money  in  foreign  trade. 

ORIGIN   AND    NATURE   OF   BILLS    OF   EX  • 
CHANGE. 

Even  the  Romans  appear  to  have  been  ac- 
quainted in  a  slight  degree  with  the  system 
of  foreign  bills  of  exchange  ;  but  it  is  to  the 
-early  Italian,  and»,especially  the  Jewish  mer- 
chants, that  we  owe  the  development  of  the 
practice.  The  history  ot  the  subject  is 
buried  in  much  obscurity,  but  there  is  evi- 
dence that,  as  early  as  the  fourteenth  cen- 
tury, the  use  of  bills  of  exchange  was  fully 
established.  The  forms  of  the  bills,  and 
the  laws  and  customs  relating  to  them,  were 
then  much  the  same  as  in  the  present  day. 

A  bill  is  nothing  but  an  order  to  pay 
money  addressed  by  the  drawer  to  the 
drawee,  or  person  on  whom  it  is  drawn, 
specifying  the  amount  to  be  paid,  the  time 
of  payment,  and  the  person  to  whom  it  is  to 
be  paid.  Whenever  a  bill  is  drawn,  it  is  to 
be  presumed  that  a  debt  is  due  from  the 
drawee  to  the  drawer.  When  presented  to 
the  drawee  and  accepted  by  him,  this  accept- 
ance is  an  acknowledgment  of  the  existence 
of  the  debt.  The  bill,  although  drawn  in 
favor  of  a  particular  person,  is  transferable 
by  endorsement,  and  thus  represents  a  nego- 
tiable claim  to  receive  money  at  a  future  date 
in  a  distant  country.  Hence  it  is  capable  of 
being  transmitted  in  discharge  of  another 
debt  of  equal  amount. 

Eng!  tnd  buys  every  year  from  America  a 
great  quantity  of  cotton,  corn,  pork,  and 
many  other  articles.  America  at  the  same 
time  buys  from  England  iron,  linen,  silk,  and 
•ther  manufactured  goods.  It  would  be  ob- 
viously absurd  that  a  double  current  of  specie 
should  be  passing  across  the  Atlantic  Ocean 
in  payment  for  these  goods,  when  the  inter- 
vention of  a  few  paper  acknowledgements  of 
debt  will  enable  the  goods  passing  in  one  di- 
rection to  pay  for  those  going  in  the  opposite 


direction.  The  American  merchant  who  hfo 
shipped  cotton  to  England  can  draw  a  bill 
upon  the  consignee  to  an  amount  not  exceed- 
ing the  value  of  the  cotton.  Selling  this  bill 
in  New  York  to  a  party  who  has  imported 
iron  from  England  to  an  equivalent  amount, 
it  will  be  transmitted  by  post  to  the  English 
creditor,  presentea  for  acceptance  to  the  En- 
glish debtor,  and  one  payment  of  cash  on 
maturity  will  close  the  whole  circle  of  trans- 
actions. Money  intervenes  twice  over,  in- 
deed; once  when  the  billls  sold  in  New  York, 
once  when  it  is  finally  canceled  in  England^ 
but  it  is  evident  that  payment  between  two 
parties  in  one  town  is  substituted  for  payment 
across  the  whole  breadth  of  the  Atlantic. 
Moreover,  the  payments  may  be  effected  by 
the  use  of  checks,  or  the  bills  when  due  may 
themselves  be  presented  through  the  Clearing 
House,  and  balanced  off  against  other  bills 
and  checks.  Thus  the  use  of  metallic  money 
seems  to  be  rendered  almost  superfluous, 
and,  so  long  as  there  is  no  great  disturbance 
in  the  balance  of  exports  and  imports,  foreign 
trad&.is  restored  to  a  system  of  perfected 

TRM^m^i   FOREIGN    BILLS. 

It  is  an  ^Kpturjfh  supposition  that  every 
importer  of  Vpds  fln  meet  with  an  exporter 
of  goods  tdBthe  s$me  amount,  so  that  two 
transactions  Wall  exactly  balance  each  other. 
But  there  are  many  merchants  in  Liverpool 
indebted  to  American  merchants,  and  many 
American  merchants  indebted  to  others  in 
Liverpool.  Hence  there  will  be  a  continual 
supply  of  bills  of  various  amounts,  and  a  con- 
tinual  demand,  and  it  becomes  a  profitable 
business  for  certain  houses  to  deal  in  the  bills, 
purchasing  bills  from  those  who  can  draw 
and  selling  to  those  who  wish  to  remit. 

Large  firms  of  merchants  often  have  houses 
both  in  America  and  in  England,  or  a  firm 
in  one  country  has  agents  or  correspondents 
in  the  other  with  whom  they  keep  a  running 
account.  Not  uncommonly,  the  very  same 
firm  may  be  both  importing  and  exporting, 
so  that  a  direct  balancing  of  their  accounts 
will  be  so  far  effected.  The  remaining  bal- 
ance need  only  be  paid  from  time  to  time  as 
opportunity  offers.  Thus,  in  foreign  as  in 
home  trade,  book  credit  serves  in  a  great  de- 
gree to  economise  the  use  of  money.  Only 
when  there  is  a  derangement  of  the  balance 
of  trade,  and  one  country  owes  to  another  a 
preponderating  debt  of  large  amount,  need 
specie  be  transmitted. 

It  is  out  of  the  question  that  I  should,  in 

this  .small  treasise,  attempt  to  enter  into  the 

intricacies  of  the  Foreign  Exchanges,  which 

have  been  so  admirably  treated  by  Mr.  Gos- 

chen,   in   his  "Theory  of  the  Foreign  Ex« 

changes."     The  general  principle  of  the  sub- 

|  ject  is,  that  bills  of  exchange  drawn  on  any 

j  particular  place  constitute  a  new  kind  of  ar- 

i  tide,   subject  to  the  laws  of  supply  and  de- 

1  mand.      Any   circumstance  diminishing  the 


MONKV  AM>  T1IK  MECHANISM  OF  EXCHANGE. 


[133]  85 


supply,  or  increasing  the  demand,  raises  the 
price  of  such  bills  and  ''ice  versa.  The  price 
being  raised,  there  is  additional  profit  on  any 
transaction  which  allows  a  new  supply  of 
bills  to  be  drawn.  The  export  of  any  kind 
of  goods  in  greater  quantities  tends  to  restore 
the  balance,  but,  if  requisite,  coin  or  bullion 
can  be  sent  at  a  certain  cost,  and  bills  drawn 
against  it.  Thus  the  cost  of  transmitting 
specie  is  the  limit  to  the  premium  on  bills. 
Gold  and  silver  being  everywhere  considered 
a  desirable  possession,  and  being  also  very 
portable,  form,  as  remarked  at  the  outset, 
the  natural  currency  between  nation  and  na- 
tion. If  a  country  were  to  be  absolutely  de- 
nuded of  specie,  and  had  foreign  debts  to 
pay,  forced  exportation  and  ^sale  of  the  next 
most  generally  desirable  and  portable  com- 
modity would  be  the  only  resource,  and  the 
premium  on  bills  might  vary  to  almost  any 
extent  from  par.  Thus  it  is  seen  that,  in  an 
economical  point  of  view,  gold  and  silver 
differ  from  other  merchandise  not  in  kind  but 
in  degree. 


THE  WORLD'S  CLEARING  HOUSE. 


It  might  seem  that 
ternally,  and  of  bills 
trade,    we   have  re  ' 
economy  of  metalli 
one  further  step  to 
long  as  all  the  mercha 


e  of  checks  in- 
in  foreign 
imax   in   the 
t  there  is  yet 
found  that  so 
town  keep  their 


cash  with  the  same  banker,  they  have  no  need 
to  handle  the  money  at  all,  but  can  make  pay- 
ments by  transfers  in  the  books  of  their 
banker.  Let  us  imagine,  then,  that  mer- 
chants all  over  the  world  agreed  to  keep  their 
principal  accounts  with  the  bankers  of  any  one 
great  commercial  town.  All  their  mutual 
transactions  could  then  be  settled  among 
those  bankers.  An  approximation  to  such 
a  state  of  things  exists  in  the  tendency  to 
make  London  the  monetary  headquarters  of 
the  commercial  world,  and  the  general  clear- 
ing house  of  international  transactions. 

All  that  is  needed  to  secure  economy  of 
money  is  centralization  of  transactions,  so 
that  there  may  be  wider  scope  for  the  balan- 
cing of  claims.  Before  the  elaborate  system 
of  English  provincial  banking  grew  up,  con- 
siderable economy  was  effected  by  the  prac- 
tice of  "drawing  upon  London."  In  every 
country  town  many  persons  wanted  to  trans- 
mit money  to  London,  and  others  wanted  to 
draw  money  from  the  same  place.  To  vast 
private  trading  transactions  with  the  capital 
and  principal  commercial  towns  was  added 
the  whole  of  the  payments  connected  with 
the  collection  and  expenditure  of  the  public 
revenue.  In  each  country  town  some  promi- 
nent trader  discovered  that  profit  was  to  be 
made  by  selling  bills  on  London  to  those  who 
wished  to  remit,  and  buying  with  the  pro- 
ceeds the  bills  of  those  who  had  claims  upon 
banks  and  firms  in  London.  The  capital  thus 
becoming  the  monetary  centre,  it  was  often 
convenient  to  make  payments  to  other 


towns  by  bills  upon  London.  Each  person 
wanting  to  remit  was  more  likely  to  get  a  bill 
upon  London  with  ease  than  upon  any  other 
place,  and  it  was  likely  that  the  creditor 
would  prefer  such  a  bill  to  one  upon  a  town 
with  which  he  had  no  relations.  It  is  ob- 
vious that  if  every  important  trader  in  En- 
gland kept  his  principal  cash  with  a  city 
banker,  the  use  of  bills  on  London  would 
have  enabled  all  the  commercial  transactions 
of  England  to  be  centred  in,  and  cleared 
through  the  books  of  these  bankers  and  the 
Clearing  House. 

CENTRALIZATION     OK     FINANCIAL    TRANSAC- 
TIONS IN  LONDON. 

There  is  a  similar  advantage  in  centraliz- 
ing foreign  transactions  in  London.  In  the 
absence  of  any  general  center,  each  two  com- 
mercial towns  must  settle  their  mutual  trans- 
actions directly  and  separately.  A  merchant 
will  be  receiving  bills  upon  the  bankers  and 
merchants  of  many  other  towns.  There  is  a 
double  inconvenience  in  this.  The  supply 
and  demand  for  bills  upon  comparatively 
small  places  must  be  comparatively  small  and 
variable,  and  the  bills  will  be  drawn  upon 
minor  firms,  of  the  soundness  of  which  it 
will  not  be  easy  to  get  satisfactory  informa- 
tion. Many  firms,  too,  in  the  present  day 
have  houses  in  several  parts  of  the  world,  and 
it  would  be  more  convenient  that  their  mutual 
transactions  should  be  brought  to  a  centre 
somewhere,  just  as  the  transactions  of  branch 
banks  are  brought  to  a  centre  in  the  head 
office.  Thus  there  arises  a  tendency  to  pre- 
fer bills  drawn  upon  well-known  London 
banks,  or  other  great  London  firms,  whose 
credit  is  known  all  over  the  world,  and  cetei  is 
paribus,  such  bills  will  command  a  readier 
acceptance  in  the  exchange  market.  Persons 
having  to  draw  bills  will  get  a  better  price  if 
they  can  draw  upon  London,  which  they  can 
do  by  opening  an  account  with  a  London 
firm,  and  arranging  that  remittances  due  to 
them  shall  be  deposited  to  their  credit  in 
London.  It  comes  to  pass  that  a  merchant 
in  America,  Australia,  or  India,  will  prefer 
to  receive  money  in  London  rather  than  any- 
where else.  Everyone  wishing  to  remit 
money  can  then  do  so  in  the  form  of  a  bill 
upon  the  holders  of  these  funds  in  London, 
and  the  fund  will  be  recruited  from  time  to 
time  by  similar  bills  received  and  transmitted 
to  London  for  collection. 

This  tendency  to  the  centralization  of  fi- 
nancial business  in  London  is  much  pro- 
moted by  the  fact  that  the  largest  mass  of 
cheap  loanable  capital  exists  there.  The 
general  rate  of  interest  in  New  York  is  at 
least  2  per  cent,  higher  than  in  London,  so 
that  a  trader  who  has  credit  enough  to  obtain 
loans  in  London,  will  make  a  profit  by  bor- 
rowing there  rather  than  in  New  York.  Thus, 
instead  of  first  depositing  money  in  London, 
and  afterward  drawing  against  it,  the  more 
usual  and  profitable  form  of  the  transaction 


S6  [134J  MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


!•  to  get  a  credit  there,  that  is,  leave  to  draw 
against  a  banker,  making  subsequent  remit- 
tances to  recoup  the  banker  accepting  and 
paying  the  bills.  As  regards  continental 
trade,  Paris,  Benin,  Vienna,  Hamburg,  and 
Amsterdam  are  of  course  highly  important 
centres,  but  recent  wars  have  occasioned  a 
considerable  transfer  of  financial  business 
to  London.  Moreover,  the  great  foreign 
trade  of  England,  reaching  into  every  quar- 
ter of  the  globe,  and  the  many  distant  colon- 
ies and  dependencies  which  naturally  have 
financial  relations  with  the  capital  of  the  em 
pire,  tend  to  give  London  a  unique  position. 

REPRESENTATION    OF   FOREIGN    BANKERS  IN 
LONDON. 

The  result  of  this  centralization  of  banking 
transactions  in  London  is,  that  colonial  and 
foreign  bankers  find  it  very  desirable  to  have 
agents,  or  even  head  offices  in  London.  At 
the  present  time  there  are  no  Idss  than  60  im- 
portant colonial  and  foreign  banks  which 
have  their  own  London  offices  or  houses. 
These  include  the  principal  Australian,  New 
Zealand  and  Indian  banks,  and  a  number  of 
minor  banks,  established  by  English  capital- 
ists to  cultivate  the  trade  of  the  minor  states 
of  Europe,  South  America,  China  and  the 
East.  In  addition  to  the  above  60  banks, 
there  are  fully  i.ooo  foreign  and  colonial 
banking  houses  in  correspondence  with  Lon- 
don bankers,  so  that  almost  every  town  in 
the  world  which  can  maintain  a  bank  at  all, 
lias  the  means  of  correspondence  with  some 
member  of  the  London  banking  system.  The 
foreign  bankers  vary  greatly  in  the  importance 
of  their  transactions,  and  some  of  them 
would,  according  to  English  ideas,  be  con- 
sidered merchants  rather  than  bankers  ;  but, 
in  the  aggregate,  their  transactions  must  be 
exceedingly  large.  It  must  almost  inevitably 
follow  that  transfers  of  money  will  be  more 
and  more  made  through  London.  Just  as 
this  city  is  the  link  of  connection  between  each 
English  country  banker  and  each  other  one, 
so  it  may,  and  probably  will  by  degrees,  be- 
come the  link  between  the  most  distant  parts  of 
the  world  But  the  greater  becomes  the  profit- 
able burden  of  financial  business  thrown  upon 
Lombard  street  and  Threadneedle  street,  the 
more  it  behoves  us  to  take  care  that  our  cur- 
rency system  is  maintained  upon  the  soundest 
possible  basis.  It  is  requisite,  too,  that  our 
bankers,  financiers  and  merchants  should  reg- 
ulate their  operations  with  a  thorough  com- 
prehension of  the  immense  system  in  which 
they  play  a  part,  and  the  risks  of  derange- 
ment and  failure  which  they  encounter  by 
over-severe  competition.  No  one  doubts  that 
alarming  symptoms  have  during  recent  years 
presented  themselves  in  the  London  money 
market.  There  is  a  tendency  to  frequent 
severe  scarcities  of  loanable  capital,  causing 
sadden  variations  of  the  rate  of  interest  al- 
most unknown  thirty  years  ago.  I  will  there- 
for* in  the  next  chapter  offer  a  few  remarks 


intended  to  show  that  this  is  an  evil  naturally 
resulting  from  the  excessive  economy  of  the 
precious  metals,  which  the  increasing  perfec- 
tion of  our  banking  system  allows  to  be 
practiced,  but  which  may  be  carried  too  far 
and  lead  to  extreme  disaster. 


CHAPTER  XXIV. 

THE    BANK    OF    ENGLAND  AND   THE  HOMEY 
MARKET. 

We  commenced  the  study  of  money  with 
the  barter  of  ordinary  commodities,  and 
money  appeared  in  the  first  place  as  some 
common  commodity  handed  about  as  a  me- 
dium of  exchange.  By  degrees,  however, 
the  subject  assumed  a  greater  and  greater 
degree  of  complexity.  The  metals  took  the 
place  of  other  commodities  as  currency,  and 
delicate  consideratious  began  to  enter  con- 
cerning token  and  standard  coins.  From 
metallic  representative  money,  we  passed  to 


oney,  and  finally  dis- 
eck  and  clearing  sys- 
almost  eliminated 
ges  of  the  country, 
now  present  them- 
m  full  of  account- 
sums    of    money. 


up 


paper  representaj 

covered  that, 

tern,  metallk 

from  the  int| 

Pecuniary  tr 

selves  in  the 

ants,    hastily   ac 

But  we  must  never  forget  that  all  the  figures 
'in  the  books  of  a  bank  represent  gold,  and 
I  every  creditor  can  demand  the  payment  of 
i  the  metal.  In  the  ordinary  state  of  trade  no 
|  one  cares  to  embarrass  himself  with  a  quan- 
I  tity  of  precious  metal,  which  is  both  safer 
I  and  more  available  in  the  vaults  of  a  bank. 
!  But  in  international  trade,  gold  and  silver 
!  are  still  the  media  by  which  balances  of  in- 
|  debtedness  must  be  paid,  and  serious  conse- 
!  quences  may  arise  from  any  disproportion 
;  between  the  amount  of  transactions  carried 
'  on,  and  the  basis  of  gold  upon  which  they 
i  are  settled. 

EXPANSION  OF  TRADE. 

No  one  doubts  that  in  the  last  thirty  years 
there  has  been  an  immense  expansion  in 
the  trade  of  this  and  most  other  countries. 
If,  as  is  very  commonly  done,  we  take  the 
foreign  trade  as  a  test  of  the  general  advance 
of  industry,  we  find  that  the  total  declared 
real  value  of  British  and  Irish  produce  ex- 
ported from  the  United  Kingdom  was,  in 
1846,  about  58  millions  sterling.  In  1866  it 
amounted  to  189  millions,  or  more  than  three 
times  as  much.  In  the  mean  time  the  bank- 
note  circulation  had  rema'ned  almost  un- 
changed, and  such  alteration  as  there  was, 
consisted  in  a  decrease.  The  total  circula- 
tion of  bank-notes,  English,  Scotch,  and 
Irish,  was,  in  1846,  89  millions,  and  in  1866, 
38^  millions.  I  believe,  however,  that  the 
best  test  ot  the  progress  of  trade,  both  in- 
ternal  and  external,  is  furnished  by  the  ovfc 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


PS5J  8? 


pot  of  eon!,  the  mainspring  of  our  wealth.  |  the  restriction  of  specie  payments,  the  bullioa 
Now,  in  1854  the  total  quantity  of  coal ;  report,  the  one-pound  note  question,  and  the 
raised  was  about  65  millions  of  tons,  and  the  joint  stock  banks.  Since  1844.  however,  all 
note  currency  38  millions  ;  in  1866  the  coal  currency  theorists  have  concentrated  their 
raised  had  increased  to  101  ><  millions  of 
tons,  or  by  56  per  cent.,  while  the  note  cur 


rency  still  remained  almost  as  before,    natne- 


islation. 

The  Acts  of  1844  and'  1845  placed  a  fixed 


the 


attentions  upon  tne  tfanK  L,narter  Act  ot  tnat 
year,  and  while  endlessly  differing  about  the 
nature  of  the  remedy,  have  been  unanimous 

38  j£  millions.  Between  1866  and  1874,  in  attributing  all  kinds  of  evils  to  a  settle- 
indeed,  there  was  a  remarkable  increase  in  ment  of  our  currency,  which  I  believe  to  be  a 
the  circulation,  the  amount  of  which  rose  to  monument  of  sound  and  skillful  financial  leg- 
£43, 912,000,  or  by  14  per  cent.,  but  the 
production  of  coal  had  in  the  mean  time 

risen  to  127  millions,  an  increase,  compared    limit  upon  the  amount  of  notes  which  can  in 
with  1854,  of  95  per  cent,  this  country  be  issued  without  an  equal   de- 

!  posite  of  gold.     At  present  (April, 

COMPETITION   OF   BANKERS.  [  g»    Qf   |ngland    JjJ 

It  is  quite  apparent,  therefore,  that  the  |  fifteen  millions;  the  private  and  joint  stock 
tendency  is  to  carry  on  a  greater  and  greater  banks  of  England  are  individually  restricted 
trade  upon  an  amount  of  metallic  currency  '  to  fixed  amounts,  which,  added  together, 
which  does  not  grow  in  anything  like  the  make  about  ^6,460,000,  while  the  Scotch 
same  proportion.  The  system  of  banking,  banks  can,  in  a  similar  manner,  issue  notes 
too,  grows  more  perfect  in  the  sense  of  in-  to  the  amount  of  .£2,750,000,  and  the  Irish 
creasing  the  economy  with  which  money  is  banks  to  the  amount  of  ^6,350,000,  making 
used.  The  competition  of  many  great  banks,  in  all  about  30^  millions.  In  addition  to 
leads  them  to  transact  the  largest  possible  i  this  the  Bank  of  England,  and  the  Scotch  and 
business  with  the  smal 
they  can  venture  to 
banks  pay  dividends  o 
ty  five  per  cent.,  wh 
by  using  large  de 
manner.  Even  the 
much  of  actual  coins 


reserves  which  ,'  Irish  banks,  can  issue  as  many  more  notes 
>me  of  these  !  as  they  have  deposits  of  bullion  or  coin;  and 
ity  to  twen-  in  the  year  1874,  the  extra  amount  thus  issued 
jbe  possible  was  about  14%  millions.  Let  it  be  never 
fery  fearless  forgotten,  that  no  restriction  is  thus  placed 
isist  not  so  upon  the  sum  total  of  the  currency  of  the 
__  c-notes  in  the  country;  for  the  original  legai  tender  of  the 
vaults,  as  of  money  employed  in  the  Stock  country  is  the  coined  sovereign  of  123*274 
ExchAnge,  or  deposited  in  the  Bank  of  En-  grains  of  gold,  and  every  one  who  has  the 
gland  which  again  lends  the  deposits  out  to  a  1  gold  can  readily  turn  it  into  sovereigns.  The 
certain  extent.  objectors  to  the  Bank  Charter  Act  urge  that 

Now  the  larger  the  trade  which  is  carried  we  want  more  currency,  but  they  cannot 
on,  the  larger  will  be  the  occasional  demand  really  mean  more  metallic  currency.  We 
for  gold  to  make  foreign  payments  ;  and  if  must  not  look  to  changes  in  the  law  to 
the  stock  of  gold  kept  in  London  be  growing  increase  the  amount  of  specie  in  the  country, 
comparatively  smaller  and  smaller,  the  greater  and,  as  I  have  remarked,  any  one  can  get 
will  be  the  difficulty  in  meeting  the  demand  j  sovereigns  if  he  has  the  needful  gold.  This 
from  time  to  time.  Such  is,  I  believe,  the  metal,  again,  is  only  to  be  had,  in  the  absence 
whole  secret  of  the  growing  instability  and  of  gold  mines,  by  that  state  of  foreign  trade 
delicacy  of  the  money  market  in  this  country.  |  which  brings  it,  and  does  not  drain  it  away 
There  is  a  larger  and  larger  quantity  of  \  again.  The  principal  currency,  in  short, 
claims  for  gold,  and  comparatively  less  gold  must  be  regarded  as  a  commodity,  the  supply 
to  meet  them,  so  that  every  now  and  then  j  of  which  is  to  be  left  to  the  natural  action  of 
there  is  a  natural  difficulty  in  paying  claims,  the  laws  of  supply  and  demand.  The  unre- 
and  the  rate  of  interest  has  to  be  suddenly  strictcd  issue  of  paper  representative  notes 
raised  to  induce  those  who  have  gold  to  lend  I  produces  an  artificial  interference  with  these 
it,  or  to  induce  those  who  were  demanding  it  natural  conditions. 
to  forego  their  claims  for  a  time.  Most  peo-  I  BANKTNP  srwooi 

pie,  it    is  true,  attribute  all  these  troubles,  I 

either  to  the  much  abused  gentlemen  who  i  What  the  currency  theorists  want,  then,  is 
meet  weekly  in  the  parlor  of  the  Bank  of  i  not  more  gold,  but  more  promises  to  pay  gold. 
England,  or  to  Sir  Robert  Peel,  who  estab- 


lished  the  note  issue  of  the  Bank  upon  the 
partial  deposit  system  already  described  in 
Chapter  XVIII. 

THE  BANK  CHARTER  ACT  OF   1844. 

At  all  times  during  the  last  two  hundred 
years,  there  has  been  some  currency  topic 
upon  the  anvil.  In  early  days  it  was  tne 
scarcity  of  silver  coin,  the  South  Sea  bubble, 
or  the  price  of  the  guinea.  Later  on  ca  ae 


The  Free-banking  School  especially  argue 
that  it  is  among  the  elementary  rights  of  an 
individual  to  make  promises,  and  that  each 
banker  should  be  allowed  to  issue  as  many 
notes  as  he  can  get  his  customers  to  take, 
keeping  such  a  reserve  of  metallic  money,  as 
he  thinks,  in  his  own  private  discretion,  suffi- 
cient to  enable  him  to  redeem  his  promises. 
But  this  free  issue  of  paper  representative 
money  does  not  at  all  meet  the  difficulty  of 
the  money  market,  which  is  a  want  of  gold. 


M  [133]  MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


not  of  paper  ;  on  the  contrary,  an  unlimited 
issue  of  paper  would  tend  to  reduce  the 
already  narrow  margin  of  gold  upon  which 
we  erect  an  enormous  system  of  trade.  Here 
we  reach  the  critical  point  of  the  whole  theory 
of  currency.  There  is  also  a  school  of  cur- 
rency writers,  formerly  represented  in  En- 
gland by  Ricardo  and  Tooke.who  hold  that  it 
is  impossible  to  over-issue  convertible  paper 
money.  Arguments  to  this  effect  have  been 
recently  urged  with  great  ability  by  Mr.  R. 
H.  Inglis  Palgrave,  in  his  work  entitled 
"  Notes  on  Banking,"  and  his  wide  acquain- 
tance with  the  subject  should  lend  much 
force  to  his  opinions.  But  there  is,  to  my 
mind,  an  evident  flaw  in  their  position. 

POSSIBILITY  OF  OVER-ISSUE. 

When  prices  are  at  a  certain  level,  and 
trade  in  a  quiescent  state,  a  single  banker  is, 
no  doubt,  unable  to  put  into  circulation  more 
than  a  certain  quantity  of  bank-notes.  He 
cannot  produce  a  greater  effect  upon  the 
whole  currency  than  a  single  purchaser  can 
by  his  sales  or  purchases  produce  upon  the 
market  for  corn  or  cotton.  But  a  number  of 
bankers,  all  trying  to  issue  additional  notes, 
resemble  a  number  of  merchants  offering  to 
sell  corn  for  future  delivery,  and  the  value  of 
gold  will  be  affected  as  the  price  of  corn  cer- 
tainly is.  We  are  too  much  accustomed  to 
look  upon  the  value  of  gold  as  a  fixed  datum 
line  in  commerce;  but,  in  reality,  it  is  a  very 
variable  thing.  The  tables  of  prices  analysed 
by  me  in  the  Statistical  Journal  for  June, 
1865,  show  that  between  1822  and  1825  there 
was  an  average  rise  of  prices  to  the  amount 
of  17  per  cent.;  and  between  1844  and  1847, 
and  1852  and  1857,  the  average  rises  were 
respectively  13  and  31  per  cent.  Such  vari- 
ations of  prices  mean  that  the  value  of  gold 
is  itself  altered  in  the  inverse  ratio;  and  these 
variations  are  produced  mainly  by  extensions 
of  credit.  Every  one  who  promises  to  pay 
gold  on  a  future  day,  thereby  increases  the 
anticipated  supply  of  geld,  and  there  is  no 
limit  to  the  market.  Every  one  who  draws  a 
bill  or  issues  a  note,  unconsciously  acts  as  a 
"bear"  upon  the  gold  market.  Everything 
goes  well,  and  apparent  prosperity  falls  upon 
the  whole  community,  so  long  as  these  prom- 
ises to  pay  gold  can  be  redeemed  or  replaced 
by  new  promises.  But  the  rise  of  prices  thus 
produced  turns  the  foreign  exchanges  against 
the  country,  and  creates  a  balance  of  indebt- 
ness  which  must  be  paid  in  gold.  The  basis 
of  the  whole  fabric  of  credit  slips  away,  and 
produces  that  sudden  collapse  known  as  a 
commercial  crisis. 

Now,  what  is  true  of  credit  generally,  is 
still  more  true  of  the  special  form  of  credit 
involved  in  bank  promissory  notes.  These 
purport  to  be  payable  in  gold  coin  on  demand, 
so  that  they  are  taken  by  every  one  as  equiv- 
alent to  the  coin.  Even  bills  of  exchange 
can  be  paid  in  notes,  and  as  regards  internal 
trade,  no  difficulty  would  be  felt  in  maintain- 


ing credit  so  long  as  promises  to  pay  gold 
circulate  instead  of  gold.  But  foreigners  wili 
not  hold  such  promises  on  the  same  footing; 
and,  if  the  exchanges  are  against  us,  the 
metallic,  not  the  paper,  part  of  the  currency 
will  go  abroad.  It  is  at  this  moment  that 
bankers  will  find  no  difficulty  in  expanding 
their  issues,  because  many  persons  have 
claims  to  meet  in  gold,  and  the  notes  are  re- 
garded  as  gold.  The  notes  will  thus  conven- 
iently fill  up  the  void  occasioned  by  the  ex- 
portation of  specie;  prices  will  be  kept  up, 
prosperity  will  continue,  the  balance  of  for- 
eign trade  will  be  still  against  us,  and  the 
game  of  replacing  gold  by  promises  will  go 
on  to  an  unlimited  extent,  until  it  becomes 
actually  impossible  to  find  more  gold  to  make 
necessary  payments  abroad. 

Professor  Cliffe  Leslie,  writing  in  MacmiU 
fan's  Magazine  for  August,  1864,  correctly 
pointed  out,  as  I  think,  that  speculative 
credit  often  raises  prices  for  a  time  above 
their  natural  range.  Representative  credit, 
on  the  other  hand,  by  which  I  suppose  he 


posit  of  metal, 
tion  of  the  cu 
in  raising  p 
exist  under 
The  actu 
country  is  n 
occurred  in  t 


means  notes  issued   against  the  actual    de- 
sly  forms  no  augmenta- 
and  can  have  no  effect 
the  level  which  would 

system. 

olf  the  bullion  of  * 
event,  for  it  is  what 
try  in  1839.  under  the 
free  system  of  note  issue.  The  Bank  of 
England  had  parted  with  almost  the  whole 
of  its  bullion,  and  was  only  saved  from  bank- 
ruptcy by  the  ignominious  expedient  of  a 
large  loan  from  the  Bank  of  France.  The 
narrow  limits  of  this  book  evidently  restrict 
me  from  entering  into  historical  and  statis- 
tical illustrations,  but  it  may  be  said,  that  the 
collapse  which  followed  the  crisis  of  1839 
induced  severer  distress  and  depression  of 
trade  than  has  ever  since  been  known  in  this 
country.  We  now  carry  on  industry  and 
commerce  many  times  greater  than  in  1839, 
and  there  is  nothing  to  indicate  that  either 
the  bank  directors  or  the  commercial  classes 
are  more  cautious  or  far-seeing  than  they  then 
were.  On  the  contrary,  competition,  specu- 
lation, and  the  bold  erection  of  the  widest 
affairs  upon  the  narrowest  basis  of  real  cap- 
ital is  more  common  than  ever.  Knowing  as 
we  do  the  very  narrow  margin  of  real  metal 
upon  which  our  many  great  banks  conduct 
their  business,  it  is  impossible  to  entertain 
for  a  moment  the  notion  of  allowing  the  pa- 
per currency  of  the  country  to  rest  upon  the 
discretionary  reserves  of  such  competing 
bankers. 

THE  RIGHT  OF  COINING  BANK-NOTES. 

According  to  the  view  which  I  adopt,  the 
issue  of  notes  is  more  analogous  to  the 
royal  function  of  coinage  than  to  the  ordinary 
commercial  operation  of  drawing  bills.  We 
ought  to  talk  of  coining  notts,  as  John  Law 
did;  for  though  the  design  is  impressed  on 


MONEY  AND  THF.   M  KCIIANISM   ol     1  XCHANGE. 


|_1:{7J 


paper  instead  of  metal,  the  function  of  the 
note  is  entirely  the  same  as  a  representative 
token.  As  to  the  right  to  issue  promises,  it 
no  more  exists  than  the  right  to  establish  pri- 
vate mints.  For  our  present  purposes  that 
alone  is  right  which  the  legislature  declares 
to  be  expedient  to  the  community  at  large. 
As  almost  every  one  has  long  agreed  to  place 
the  coinage  of  money  in  the  executive  gov- 
ernment, so  I  believe  that  the  issue  of  paper 
representative  money  should  continue  to  be 
practically  in  the  hands  of  the  government, 
or  its  agents  acting  under  the  strictest  legis- 
lative control.  M.  Wolowski,  in  his  admir- 
able works  on  banking,  has  maintained  that 
the  issue  of  notes  is  a  function  distinct  from 
the  ordinary  operations  of  a  banker;  and  Mr. 
Gladstone  has  allowed  that  the  distinction  is 
a  wholesome  and  vital  one.  Bankers  enjoy 
the  utmost  degree  of  freedom  in  this  country 
a*  present,  in  every  other  point,  so  that  it  is 
wholly  a  confusion  of  ideas  to  speak  of  the 
unrestricted  emission  of  paper  representative 
money  as  a  question  of  free  banking. 

Professor  Sumner  and  others  have  objected 
to  the  Bank  Charter  Acti  that  it  cannot  be 
regarded  as  a  scientific  sdftlement  of  the  cur- 
rency question,  ina^mwh  as  n^  other  nation 
had  adopted  the.  eamfc'JDrinqiples.  Quite 
lately,  however,  th6'Ge«nan  Imperial  gov- 
ernment has  adoptecUtJpJg^m^in  principle  of  a 
partial  deposit,  adding  to  it  the  liberty  of  in- 
creasing the  issues  under  a  tax  of  five  per 
cent.,  an  arrangement  which  I  have  de- 
scribed under  the  name  of  the  Elastic  Limit 
System  (Chap,  xviii).  This  provision  appears 
to  be  designed  to  avoid  the  suspension  of 
the  law  during  times  of  crisis,  and  it  is 
quite  possible  that  we  might  with  advantage 
introduce  a  similar  modification  into  our  own 
currency  law.  But  the  fine  or  tax  upon  the 
excessive  issue  ought  surely  to  be  much  more 
than  five  per  cent.,  and  in  this  country  should 
certainly  not  be  less  than  ten  per  cent. 

SCOTCH    AND    ENGLISH    BANKING 

It  is  common,  indeed,  to  point  to  the 
Scotch  banks  as  a  proof  that  a  perfectly  sound 
currency  may  be  furnished  by  banks  acting 
on  their  own  unfettered  discretion.  Up  to 
1 845,  the  twelve  or  thirteen  Scotch  banks  cer- 
.  tainly  did  possess  the  right  of  freely  issuing 
notes  down  to  one-pound  notes,  and  only  in 
one  or  two  cases  did  bankruptcy  occur.  All 
this  I  grant,  holding  that  Englishmen  and 
Americans,  and  natives  of  all  countries,  may 
well  admire  the  wonderful  skill,  sagacity,  and 
caution  with  which  Scotch  bankers  have  de- 
veloped and  conducted  their  system.  There 
is  no  doubt,  too,  that  Scotch  bankers  are 
guiding  the  course  of  development  of  the 
banking  system  in  England,  India,  the  Aus 
tralian  colonies,  and  everywhere  with  con- 
spicuous success.  If  we  were  all  Scotchmen, 
I  believe  the  unlimited  issue  of  one-pound 
notes  would  be  an  excellent  measure.  But 
when  we  compare  the  Scotch  and  English 


banking  systems,  we  discover  a  profound  dif- 
ference. In  Scotland  there  exist  only  eleven. 
great  banks,  which  take  good  care  that  there 
shall  not  be  a  twelfth  great  bank.  The  un- 
doubted monopoly  which  they  possess  is. 
however,  used  with  great  moderation  and 
wisdom,  and  by  an  immense  ramification  of 
branches,  every  village  has  its  banks, 
and  every  poor  man  may  have  his  bank  de- 
posit, if  he  will  save  a  few  pounds.  In  En- 
gland and  Wales  we  have  267  private  and  121 
joint  stock  banks,  or,  in  ali,  388  banking 
firms,  including  in  these  numbers  the  London 
banks,  but  not  including  any  of  the  numerous* 
branch  banks.  There  is,  no  dcubt,  a  ten- 
dency to  approximate  to  the  Scotch  system 
by  the  amalgamation  of  smaller  banks.  Still 
many  new  banks  are  from  time  to  time 
started,  and  the  competition  between  them  i*v 
of  the  keenest  character.  The  high  divi- 
dends expected  by  the  shareholders  can  onlj" 
be  earned  by  bold  trading  on  small  reserves 
and  every  commercial  man  is  aware  that  th<» 
money  market  is  becoming  more  and  mort- 
sensitive. 

CASH    KESKRVES    OF    BANKERS. 

It  is  important,  but  very  difficult  to  decide, 
what  is  the  amount  of  real  cash  held  by  th< 
bankers  of  the  United  Kingdom  in  readiness  t<t 
meet  their  liabilities.  Many  banks  publish  baU 
ance-she^ts  professing  to  show  the  reserve  of 
ready  money.  1  have  already  remarked 
(Chap.  x:x)  upon  the  ambiguity  which  at- 
taches to  the  words  money  and  cash  as  com- 
monly used  ;  and,  when  we  inquire  into  the 
nature  of  the  banker's  ready  money,  it  is 
found  to  consist  in  a  great  degree  of  money 
invested  in  government  securities,  deposited 
witu  other  bankers,  especially  the  Bank  of 
England,  or  held  "at  call,"  that  is,  lent  to 
speculators  who  invest  in  negotiable  securi- 
ties. From  the  published  balance-sheets  we 
thus  get  no  indication  of  the  real  metallic  re- 
serve of  the  country,  available  for  the  pay. 
ment  of  foreign  debts. 

Mr.  R.  H.  Inglis  Palgrave,  in  his  impor- 
tant *'  Notes  on  Hanking,"  published  both  in 
the  Statistical  Journal,  for  March,  1873  (Vol. 
xxxvi.  p,  166),  and  as  a  separate  book,  has 
given  the  results  of  an  inquiry  into  this  sub- 
ject, and  states  the  amount  of  coin  and  Bank 
of  England  notes,  held  by  the  bankers  of  the 
United  Kingdom,  as  not  exceeding  four  or 
five  per  cent,  of  their  liabilities,  cr  from  one 
twenty-fifth  to  one  twentieth  part.  Mr.T.  B. 
Moxon,  of  Stockpert  and  Manchester,  has  • 
subsequently  made  an  elaborate  inquiry  into  ' 
the  same  point,  and  finds  that  the  cash  re- 
serve does  not  exceed  about  seven  per  cent, 
of  the  deposits  and  notes  payable  on  demand. 
He  remarks  that  even  of  this  reserve  a  large 
proporticn  is  absolutely  indispensable  for  the 
dally  transactions  of  the  bankers'  business, 
and  coutf  not  be  parted  with.  Thus  the 
I  whole  fabric  of  our  vast  commerce  is  found 
'  to  depend  upon  the  improbability  that  the 


'90  [138]  MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


merchants  and  other  customers  of  the  banks 
ivill  ever  want,  simultaneously  and  suddenly, 
«©  much  as  one  twentieth  part  of  the  gold 
money  which  they  have  a  right  to  receive  on 
Demand  at  any  moment  during  banking 
Vours. 

REMEDY    FOR  THE  SENSITIVNESS    OF  THE 
MONEY  MARKET. 

The  present  state  of  things  in  England  is 
not  to  be  cured  by  any  legislation.  No 
government  can  save  those  from  trouble  who 
will  make  unlimited  transactions  in  gold, 
Without  a  sure  prospect  of  finding  the  gold 
when  wanted  It  is  absurd  to  suppose  that 
any  single  establishment  like  the  Bank  of 
England,  itself  becoming  hardly  more  im- 
portant than  some  of  the  great  city  banks, 
can  prop  up  the  whole  fabric  of  English 
commerce. 

The  only  measure  which  can  restore  sta- 
bility to  the  London  market,  or  prevent  it 
from  becoming  more  and  more  sensitive,  is 
to  secure  by«ome  means  the  existence  of  more 
satisfactory  cash  reserves,  either  in  actual  coin, 
or  in  Bank  of  England  notes,  representing 
deposited  of  coin  in  the  foank  ^vaults.  It 
would  be  of  comparatively  little  use,  how-, 
ever,  for  some  banks  to  become  more  prutl^nt 
and  self-denying,  while  others  are  allowed 
to  stretch  their  resources  to  the  utmost  pos- 
sible point,  and  outbid  the  more  prudent 
banks  in  the  rates  of  dividend  they  can  pay/ 
Combined  action,  therefore,  seems  requisite, 
somewhat  in  the  manner  suggested  by  Mr. 
Bagehot,  as  regards  the  city  bankers. 

As  the  Bank  of  England  pays  no  interest 
'Upon  the  eight  millions  which  it  on  the  aver- 
age of  the  last  four  years  holds  as  the  deposits 
oi  the  London  bankers,  there  seems  to  be  no 
sufficient  reason  why  the  Bank  should  be 
-allowed  to  make  a  profit  out  of  so  large  a 
-Sum.  If  held  by  a  committee  of  the  deposit- 
ing banks  it  would  be  equally  safe,  almost 
-equally  available,  and  might,  moreover,  by 
the  investment  of  a  portion  in  government 
Stock,  yield  a  profit  to  the  depositors.  It 
may  be  asked,  Why  not  leave  each  Dank  to 
hold  its  own  reserve  in  its  own  vaults?  But 
there  would  then  be  no  security  against  some 
:banks  running  their  reserves  dangerously  low, 
and  trusting  to  extrinsic  aid  in  times  of  diffi- 
culty. One  objection  which  I  should  make 
to  the  scheme  as  put  forth  is,  that  govern- 
ment stock  should  not  be  allowed  to  form  any 
part  of  the  ultimate  reserve.  When  loanable 
capital  is  very  scarce,  such  stock  can  only  be 
converted  into  actual  bullion  by  forced  sales 
which  depreciate  the  funds,  shock  public  con 
fidence,  and  drain  away  money  from  those 
who  would  in  some  other  channel  have  em- 
ployed it  in  the  money  market.  Unless 
/government  stocks  be  sent  abroad,  their  sale 
cannot  possible  increase  the  stock  of  gold  in 
the  country.  A  cash  reserve  ought  to  be 
-Composed  of  cash,  and  although  it  may  be 
"Very  convenient  to  bankers  to  use  this  word 


in  a  loose  and  ambiguous  manner,  it  ought 
not  to  mean,  in  speaking  of  the  ultimate 
reserves  of  the  country,  anything  but  gold 
coin  or  bullion,  or  warrants,  actually  issued 
against  coin  or  bullion,  on  the  deposit  system 
previously  considered. 

It  has  been  pointed  out,  moreover,  in  an 
able  article  in  the  Banker's  Magazine  for 
February,  1875,  that  the  proposed  scheme 
would  be  very  insufficient  if  carried  out  mere- 
ly by  a  narrow  circle  of  city  bankers.  The 
association  should  include,  in  one  way  or 
another,  all  the  more  important  banks  in  the 
three  kingdoms.  The  vast  trade  of  the 
country  cannot  be  placed  upon  a  sound  basis 
until  the  force  of  public  opinion  among  bank- 
ers imposes  upon  each  member  the  necessity 
of  holding  a  cash  reserve  bearing  a  fair  pro- 
portion to  the  liabilities  incurred.  It  matters 
little  who  holds  the  reserve,  provided  it  actu- 
ally does  exist  in  the  form  of  metal,  and  is 
no/yevaporated  away  by  being  placed  at  call, 
or  deposited  with  other  banks  which  make 
free  use  of  it.  In  the  absence  of  some  com- 
mon action  amo|g  bankers,  it  is  certain  that 
the  sensitiveness  of  the  money  market  will 
itfcrease,  and  it  is*  probable^  that  commercial 
crises  will  from  time*  to  time  recur,  even  ex. 
ceeding  in  their  violence  and  disastrous  con- 
sequences those  whose  history  we  know  too 
well. 


CHAPTER  XXV. 


A  TABULAR  STANDARD  OF  VALUE. 

At  the  outset  it  was  observed  that  money, 
besides  serving  as  a  common  denominator  of 
value,  and  as  a  medium  to  facilitate  exchange, 
was  usually  employed  likewise  as  the  stand- 
ard of  value,  in  terms  of  which  contracts  ex- 
tending over  long  series  of  years  are  expressed. 
In  letting  land  on  long  or  perpetual  leases, 
in  lending  money  to  governments,  corpora- 
tions and  railway  companies,  it  is  the  general 
practice  to  make  the  interest  and  capital  re- 
payable in  legal  tender  gold  money.  But 
there  is  abundance  of  evidence  to  prove  that 
the  value  of  gold  has  undergone  extensive 
changes.  Between  1789  and  1809  it  fell  in 
the  ratio  of  100  to  54,  or  by  46  per  cent.,  as 
I  have  shown  in  a  paper  on  the  Variation  6f 
Prices  since  1782,  read  to  the  London  Stetis 
tical  Society  in  June,  1865.  From  1809  ro 
1849  it  rose  again  in  the  extraordinary  ratio 
of  loo  to  256,  or  by  145  per  cent.,  rendering 
government  annuities  and  all  fixed  payments 
extending  over  this  period,  almost  two  and  a 
half  times  as  valuable  as  they  were  in  1809. 
Since  i849«the  value  of  gold  has  again  fallen 
to  the  extent  of  at  least  20  per  cent.,  and  a 
careful  study  of  the  fluctuations  of  prices,  as 
shown  either  in  the  Annual  Reviews  of  Trade 
of  the  Economist  newspaper,  or  in  the  paper 
referred  to  above,  shows  that  fluctuations  of 


MONEY  AND  THE  MECHANISM  OJ  EXCHANGE. 


[139]  91 


from  10  to 
cycle. 


85  per  cent,  occur  in  every  credit 


CORK  RENTS. 


The  question  arises  whether,  baring  regard 
to  these  extreme  changes  in  the  values  of  the 
precious  metals,  it  is  desirable  to  employ  them 
as  the  standard  of  value  in  long  lasting  con- 
tracts. We  are  forced  to  admit  that  the 
Statesmen  of  Queen  Elizabeth  were  far-seeing 
when  they  passed  the  Act  which  obliged  the 
colleges  of  Oxford,  Cambridge  and  Eaton  to 
lease  their  lands  for  corn  rents.  The  result 
has  been  to  make  those  colleges  far  richer 
than  they  would  otherwise  have  been,  the 
rents  and  endowments  expressed  in  money 
having  sunk  to  a  fraction  of  their  ancient 
value. 

I  believe  that  there  is  no  legal  impediment 
in  the  way  of  a  landlord  leasing  his  lands  at 
present  for  a  corn  rent,  or  an  iron,  or  a  coal 
or  any  other  rent.  All  that  the  law  requires 
is  that  the  contract  shall  be  perfectly  definite, 
and  of  exactly  determinate  meaning,  so  that 
the  kind  of  commodity  intended,  and  the 
quantity  of  that  commodity,  shall  be  exactly 
ascertainable.  But  the  law,  in  defining  legal 
tender  money,  provides  against  misapprehen- 
sions concerning  money  payments,  whereas 
there  is  no  security  that  mistakes  and  diffi- 
culties will  not  arise  in  taking  other  com- 
modities as  the  matter  of  cents  Moreover, 
any  single  commodity,  such  as  corn  or  coal, 
undergoes  considerable  fluctuations  from 
year  to  year,  and  as  regards  periods  of  ten  or 
twenty  years,  might  prove  not  to  be  so  good 
a  standard  as  silver  or  gold.  Commodities 
which  are  comparatively  steady  in  value  on 
the  average  of  long  periods  may  be  subject  to 
great  temporary  variations  of  supply  or  de- 
mand. 

A  MULTIPLE  LEGAL  TENDER. 

The  question  thus  arises  whether  the  prog- 
ress of  economical  and  statistical  science 
might  not  enable  us  to  devise  some  better 
standard  of  value.  We  have  seen  (Chap,  xii) 
that  the  so-called  double  standard  sys- 
tem of  money  spreads  the  fluctuations  of 
supply  and  demand  of  gold  and  silver  over  a 
large  area,  and  maintains  both  metals  more 
unchanged  in  value  than  they  would  other- 
wise be.  Can  we  not  conceive  a  multiple 
legal  tender,  which  would  be  still  less  liable 
to  variation  ?  We  estimate  the  value  of  one 
hundred  pounds  by  the  quantities  of  corn, 
beef,  potatoes,  coal,  timber,  iron,  tea,  coffee, 
beer,  and  other  principle  commodities,  which 
it  will  purchase  from  time  to  time.  Might 
we  not  invent  a  legal  tender  note  which 
should  be  convertible,  not  into  any  one  sin- 
gle commodity,  but  into  an  aggregate  of 
small  quantities  of  various  commodities,  the 
quantity  and  quality  of  each  being  rigorously 
oefined  ?  Thus  a  hundred  pound  note  would 
xive  the  owners  a  right  ro  demand  one  quar- 
u  r  of  good  wheat,  one  ton  of  ordinary  mer- 
i  i-.-ui  bai  iron,  ooc  fcondrcd  pounds  weight 


of  middling  cotton,  twenty  pounds  of  sugar, 
five  pounds  of  tea,  and  other  articles  suffi- 
cient to  make  up  the  value.  All  these  com- 
modities will,  of  course,  fluctuate  in  their 
relative  values,  but  if  the  holder  of  the  note 
loses  upon  some,  he  will  in  all  probability 
gain  upon  others,  so  that  on  the  average  his 
note  will  remain  steady  in  purchasing  power. 
Indeed,  as  the  articles  into  which  it  is  con 
vertible  are  those  needed  for  continual  con- 
sumption, the  purchasing  power  of  the  note 
must  remain  steady  compared  with  that  of 
gold  or  silver,  which  metals  are  employed 
only  for  a  few  special  purposes. 

In  practice,  such  a  legal  tender  currency 
would  obviously  be  most  inconvenient, 
since  no  one  would  wish  to  have  a  miscel- 
laneous assortment  of  goods  forced  into  his 
possession.  He  who  wanted  corn,  would 
have  to  sell  to  other  parties  the  iron,  beef, 
and  other  things  received  alon^  with  it ;  gold, 
or  other  metallic  money,  would  doubtless  be 
used  as  the  medium  in  these  exchanges.  This 
scheme  would,  therefore,  resolve  itself  prac- 
tically into  that  which  has  been  long  since 
brought  forward  under  the  title  of  the  Tabu, 
lar  Standard  of  Value. 

LOWE'S    PROPOSED   TABLE  OF   REFERENCE. 

Among  valuable  books,  which  have  been 
forgotten,  is  to  be  mentioned  that  of  Joseph, 
Lowe  on  "  The  Present  State  of  England  in 
regard  to  Agriculture,  Trade  and  Finance,* 
published  in  1822.  This  book  contains  one 
of  the  ablest  treatises  on  the  variation  of  prices, 
the  state  of  the  currency,  the  poor-law,  popu- 
lation, finance,  and  other  public  question,  of 
the  time  in  which  it  was  published,  that  I 
have  ever  met  with.  In  Chapter  IX.  Lowe 
treats,  in  a  very  enlightened  manner,  of  the 
fluctuations  in  the  value  of  money,  and  pro- 
ceeds to  propound  a  scheme,  probably  in- 
vented by  him,  for  giving  a  steady  value  to 
money  contracts.  He  proposes  that  persons 
shall  be  appointed  to  collect  authentic  infor- 
mation concerning  the  prices  at  which  the 
staple  articles  of  household  consumption  were 
sold.  In  regard  to  corn  and  sugar,  authori- 
tative returns  were  then  and  have  ever  since 
been,  published  in  the  London  Gazette,  and 
there  seemed  to  be  no  difficulty  in  extending 
a  like  system  to  other  articles.  Having  re- 
gard to  the  comparative  quantities  of  com- 
modities consumed  in  the  household,  he  would 
then  frame  a  table  of  reference^  showing  in 
what  degree  a  money  contract  must  be  varied 
so  as  to  make  the  purchasing  power  uniform. 
In  principle  the  scheme  seems  to  be  perfectly 
sound ;  but  Lowe  did  not  attempt  to  work 
out  the  practical  details,  and  his  plan  involves 
needless  difficulties. 

POULKTT  SCROPE'S  TABULAR  STANDARD  OF 
VALUE. 

A  very  similar  scheme  was  independently 
proposed,  about  eleven  years  later,  by  Mr. 


»2  [140]  MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


G.  Poulett  Scrope,  the  well  known  writer  on 
geology  and  political  economy.  In  a  very  able 
but  now  forgotten  pamphlet,  called  "An 
Examination  of  the  Bank  Charter  Question, 
with  an  Inquiry  into  the  Nature  of  a  Jusl 
Standard  of  Value"  (London,  1833),  Mr. 
Scrope  suggests  (p.  26)  that  a  standard  might 
be  formed  by  taking  an  average  of  the  mass 
•of  commodities  which,  even  if  not  employed 
as  the  legal  standard,  might  serve  to  deter- 
mine and  correct  the  variations  of  the  legal 
standard.  The  scheme  was  also  described 
in  Mr.  Scrope's  interesting  book  on  the  Prin- 
ciples of  Political  Economy,  published  in  the 
same  year  (p.  406),  and  in  the  second  edition 
of  the  same  book,  called  "  Political  Economy 
for  Plain  People,"  issued  two  years  ago,  (p. 
308).  The  late  Mr.  G.  R.  Porter,  without 
referring  to  previous  writers,  gave  the  same 
scheme  in  1838,  in  the  first  edition  of  his 
well  known  treatise  on  "The  Progress  of 
the  Nation,"  (Sections  III.  and  IV.  p.  235). 
He  added  a  table  showing  the  average  fluct- 
uations of  fifty  commodities  monthly  during 
the  years  1833  to  1837. 

Such  scheme  fora  tabular  or  average  stand- 
ard of  value  appear  to  be  perfectly  sound 
and  highly  valuable  in  a  theoretical  point  of 
view,  and  the  practical  difficulties  are  not  of 
a  serious  character.  To  carry  Lowe's  and 
Scrope's  plans  into  effect,  a  permanent  gov- 
ernment commission  would  have  to  be  creat- 
ed, and  endowed  with  a  kind  of  judicial 
power.  The  officers  of  the  department  would 
collect  the  current  prices  of  the  commodities 
in  all  the  principal  markets  of  the  kingdom, 
and,  by  a  well-defined  system  of  calculations, 
would  compute  from  these  data  the  average 
variations  in  the  purchasing  power  of  gold. 
The  decisions  of  this  commission  would  be 
published  monthly,  and  payments  would  be 
adjusted  An  accordance  with  them.  Thus, 
suppose  that  a  debt  of  one  hundred  pounds 
was  incurred  upon  the  1st  of  July,  1875,  and 
was  to  be  paid  back  on  ist  of  July,  1878  ;  if 
the  commission  had  decided  in  June,  1878, 
that  the  value  of  gold  had  fallen  in  the  ratio 
of  106  to  loo  in  the  intervening  years,  then 
the  creditor  would  claim  an  increase  of  6  per 
cent  in  the  nominal  amount  of  the  debt. 

At  first  the  use  of  this  national  tabular 
standard  might  be  permissive,  so  that  it  could 
be  enforced  only  where  the  parties  to  the 
contract  had  inserted  a  clause  to  that  effect  in 
their  contract.  After  the  practicability  and 
utility  of  the  plan  had  become  sufficiently 
demonstrated,  it  might  be  made  compulsory, 
in  the  sense  that  every  money  debt  of,  say, 
more  than  three  months'  standing,  would  be 
varied  according  to  the  tabular  standard, 
in  the  absence  of  an  express  provision  to  the 
contrary. 

DIFFICULTIES  OP  THE  SCHEME. 

The  difficulties  in  the  way  of  such  a  scheme 
•re  not  considerable.  It  would,  no  doubt, 
introduce  a  certain  complexity  into  the  rela- 


tions of  debtors  and  creditors,  and  dispute* 
might  sometimes  arise  as  to  the  date  of  the 
debt  whence  the  circulation  must  be  made. 
Such  difficulties  would  not  exceed  those  aris- 
ing from  the  payment  of  interest,  which  like- 
wise depends  upon  the  duration  of  the  debt. 
The  work  of  the  commission,  when  once  es- 
tablished and  directed  by  Act  of  Parliment. 
would  be  little  more  than  that  of  accountants 
acting  according  to  fixed  rules.  Their  deci- 
sions would  be  of  a  perfectly  bond  fide  and 
reliable  character,  because,  in  addition  to 
their  average  results,  they  would  be  required 
to  publish  periodically  the  detailed  tables  of 
prices  upon  which  their  calculations  were 
founded,  and  thus  many  persons  could  suffi- 
ciently verify  the  data  and  the  calculations. 
Fraud  would  be  out  of  the  question. 

The  only  real  difficulty  which  I  foresee,  is 
that  of  deciding  upon  the  proper  method  of 
deducing  the  average.  According  to  the 
method  which  I  should  advocate,  a  consider- 
able number  of  commodities,  say  100,  should 
be  chosen  with  special  regard  to  the  inde- 
pendence of  their  fluctuations  one  from 
another,  and  then  the  geometrical  average  of 
the  ratios  in  which  their  gold  prices  have 
changed  would  be  calculated  logarithmically. 
This  is  the  method  which  I  employed  in  my 
pamphlet  on  the  "  Serious  Fall  in  the  Value 
of  Gold,  etc,"  and  in  the  paper  on  the 
Variations  of  Prices  since  1782,  previously 
referred  to  (page  323).  A  somewhat  similar 
method  had  been  previously  employed  by 
Mr.  Newmarch.  In  the  annual  Commercial 
History  and  Review  of  the  Economist  news- 
paper, there  has,  for  many  years,  appeared  a 
table  containing  the  Total  Index  Number  of 
prices,  or  the  arithmetical  sum  of  the  num- 
bers expressing  the  ratios  of  the  prices  of 
many  commodities  to  the  average  prices  of 
the  same  commodities  in  the  years  1845-50, 
Whatever  method  were  adopted,  however, 
he  results  would  be  better  than  if  we  con- 
tinued to  accept  a  single  metal  for  the  stand- 
ard, as  we  do  at  present. 

The  space  at  my  disposal  will  not  allow 
me  to  describe  adequately  the  advantages 
which  would  arise  from  the  establishment  of 
a  national  tabular  standard  of  value.  Such  a 
standard  would  add  a  wholly  new  degree  of 
stability  to  social  relations,  securing  the  fixed 
ncomes  of  individuals  and  public  institutions 
"rom  the  depreciation  which  they  have  often 
suffered.  Speculation,  too,  based  upon  the 
requent  oscillations  of  prices,  which  take 
)lace  in  the  present  state  of  commerce,  would 
>e  to  a  certain  extent  discouraged.  The  cal- 
culations of  merchants  would  be  less  fre- 
quently frustrated  by  causes  beyond  their 
own  control,  and  many  bankruptcies  would 
be  prevented.  Periodical  collapses  of  credit 
would  no  doubt  recur  from  time  to  time,  but 
the  intensity  of  the  crises  would  be  mitigated, 
becauses  as  prices  fell  the  liabilities  of  debt- 
ors would  decrease  approximately  in  the  urn* 
ratio. 


MONEY  AND  THE  MECHANISM  OF  EXCHANGE.  [141J  91 


CHAPTER  XXVI. 
ra  QOAMTITT    or    MONEY   NEEDED  IT  A 

NATION. 

It  might  seem    natural  that   one   most  im 
portant  point  for  discussion  in  an  Essay  on 
Money  would  be  the  quantity  of  money  re 
quired   by  a  nation.     Nothing  would   seem 
more  desirable  than  to  decide  how  much  eacl 
person  needs  of  paper,  gold,  silver  or  bronze 
currency,  so  that  the  government  might  tak 
care  to  provide  sufficient  for  every  one.     In 
almost   every  country  great   complaints  have 
from  time  to  time  been  made  as  to  the  scarcity 
of  the  circulating   medium,  and   the   urgen 
need  of  more.     All  the  evils  of  the  day,  the 
slackness  of  trade,    falling  prices,  declining 
revenue,  poverty  of  the  people,  want  of  em 
ployment,    political    discontent,    bankruptcy 
and  panic,  have  been  attributed  to  the  wani 
of  money,    the   remedy   suggested  being  in 
former  days  the  setting  of  the  mint  to  work, 
and  in  later  times  the  issue  of  paper  money. 

The  true  answer  to  all  such  complaints  is 
that  no  one  can  tell  how  much  currency  a 
nation  requires,  and  that  to  attempt  to  regu- 
late its  quantity  is  the  last  thing  which  a 
statesman  should  do.  In  almost  every  case 
the  apparen-t  scarcity  of  currency  arises  from 
unskillful  management  of  the  metallic  cur- 
rency, bad  regulation  of  paper  representative 
money,  speculation,  or  some  unsoundness  in 
commerce  which  would  be  aggravated  by  a 
further  increase  of  the  paper  currency. 
We  shall  find  that  to  ascertain  how  much 
money  is  needed  by  a  nation  is  a  problem  in- 
volving many  unknown  quantities,  so  that  a 
sore  solution  can  never  be  obtained. 

QUANTITY  OF  WORK  TO  BE  DONE  BY  MONEY, 

To  decide  how  much  money  is  needed  by 
a  nation,  we  must,  firstly,  determine  the 
quantity  of  work  which  money  has  to  do. 
This  will  be  proportional,  ceteris  faribus,  to 
the  number  of  the  population;  twice  the  num- 
ber of  people,  if  equally  active  in  trade  and 
performing  it  in  the  same  way,  will  clearly 
want  twice  as  much  money.  It  will  be  pro- 
portional, again,  to  the  activity  of  industry, 
and  to  the  complexity  of  its  organization. 
The  more  goods  are  bought  and  sold,  and  the 
more  often  they  pass  from  hand  to  hand,  the 
more  currency  will  be  needed  to  move  .them. 
It  will  be  proportional,  again,  to  the  prices 
of  goods;  and  if  gold  falls  in  value,  and  prices 
are  raised,  more  money  will  be  needed  to  pay 
the  debts  increased  in  nominal  amount. 

Few  of  the  quantities  concerned  in  such 
considerations  are  known.  We  know  fhe 
number  of  the  population  approximately,  and 
the  amount  of  foreign  trade,  but  the  quanti- 
ties of  goods  bought  and  sold  in  inland  trade 
are  almost  entirely  unknown.  It  is  needless 
to  dwell  on  this  side  of  the  question,  as  our 


knowledge  is  still  more  defective  in  other  re- 
spects. 

EFFICIENCY  OF  THE  CURRENCY. 

By  the  efficiency  of  the  currency  we  meam 
the  average  number  of  exchanges  effected  by 
each  piece  of  money  in  a  unit  of  time,  such  as 
a  year.  The  aggregate  work  done  by  money 
will  be  measured  by  its  Quantity  multiplied 
into  the  average  number  of  times  which  each 
coin  or  note  passes  from  hand  to  hand  dur- 
ing the  year.  Now  we  know  very  imper- 
fectly what  is  the  quantity  of  the  currency  in 
most  countries,  and  we  know  nothing  at  all 
as  to  the  average  rapidity  of  circulation. 
Some  coins,  especially  small  silver  and  bronze 
coins,  may  pass  several  times  in  the  course  of 
a  day.  Other  coins  or  notes  may  be  kept  in 
the  pocket  for  weeks,  or  may  be  laid  by  for 
months  and  years.  I  have  never  met  with 
any  attempt  to  determine  in  any  country  the 
average  rapidity  of  circulation,  nor  have  I 
been  able  to  think  of  any  means  whatever  of 
approaching  the  investigation  of  the  question, 
except  in  the  inverse  way.  If  we  knew  the 
amount  of  exchanges  effected,  and  the  quan- 
tity of  currency  used,  we  might  get  by  divis- 
ion the  average  number  of  times  the  currency 
is  turned  over;  but  the  data,  as  already 
stated,  are  quite  wanting. 

There  is  no  doubt  that  the  rapidity  of  cir- 
culation varies  very  much  between  one  coun- 
try and  another.  A  thrifty  people  with  slight 
banking  facilities,  like  the  French,  Swiss, 
Belgians,  and  Dutch,  hoard  coin  much  more 
than  an  improvident  people  like  the  English, 
or  even  a  careful  people  with  a  perfect  bank 
ng  system  like  the  Scotch.  Many  circum 
stances,  too,  affect  the  rapidity  of  circulation. 
Railways  and  rapid  steamboats  enable  coin 
and  bullion  to  be  more  swiftly  remitted  than 
of  old  ;  telegraphs  prevent  its  needless  re- 
moval, and  the  acceleration  of  the  mails  has 
a  like  effect.  A  decrease  in  the  circulation 
of  country  bank-notes  in  England,  in  1843, 
was  attributed  to  the  effect  of  the  p«my 
postal  reform  in  facilitating  presentation  of 
notes  by  post. 

PFECTS     OF    THE      CHECK    AND     CLEARING 
SYSTEM. 

Far  more  important  than  these  censidera- 
ions  is  the  fact  that,   where  an   extensive 
>anking  system  exists,  only  a  portion  of  the 
exchanges  are  actually  effected  by  money.     I 
'o  not  lay  much  stress  upon  the  use  of  billt 
>f  exchange  as  replacing  money,  because  the 
legree  in  which  they  are  so  used  must  be 
omparatively   limited,  and   they  are   rather 
rticles   bought  and  sold  with  money    than 
money  itself.     But  we  have  traced  out  step 
by  step  the  way.  in  which  the  check  and  clear- 
ng  system  enables  debts  to  be  balanced  off 
gainst  each  other,  so  that  the  money  is  never 
ouched  at  all,  and  only  intervenes  as  the  unit 
f  value  in  which  sums  are  expressed.     Al- 
most all  large  exchanges  are  now  effected  bf 


§4  [142]  MONEY  AND  THE  MECHANISM  OF  EXCHANGE. 


a  complicated  and  perfected  system  of  barter. 
In  the  London  Clearing  House  transactions 
to  the  amount  of,  at  least,  ^6,000,000,000  in 
the  year  are  thus  effected,  without  the  use  of 
any  cash  at  all,  and,  as  I  have  before  ex- 
plained,  this  amount  gives  no  adequate  idea 
of  the  exchanges  arranged  by  checks,  because 
so  many  transactions  are  really  cleared  in 
provincial  banks,  between  branches,  agents 
or  correspondents  of  the  same  bank,  or  be- 
tween branches  having  the  same  London 
agents. 

If  our  knowledge  of  the  amount  of  trans- 
actions in  England  is  highly  imperfect,  we 
know  still  less  of  the  way  in  which  payments 
are  effected  in  other  countries.  The  New 
York  Clearing  House  transactions  are  very 
extensive,  as  we  have  seen,  and  there  is  an 
elaborate  banking  system  extending  over  all 
the  States  of  the  Union  ;  but  it  would  require 
much  investigation  on  the  spot  to  enable  any 
one  to  form  a  notion  whether  the  correspond- 
ence between  these  banks  enables  them  to 
economize  currency  as  much  as  the  English 
system  of  London  agencies.  In  France  and 
most  continental  countries  the  check  and 
clearing  system  can  hardly  be  said  to  exist 
except  in  some  of  the  large  towns.  Paris  has 
an  incipient  clearing  house,  and  the  Bank  of 
France,  moreover,  makes  transfers  between 
clients  to  the  extent  of  two  or  three  millions 
daily.  All  banks  will  to  a  certain  extent 
economize  currency,  and  those  of  Amsterdam 
and  Hamburg  have  for  some  centuries  carried 
on  a  system  of  transfers,  the  true  prototype 
of  our  system. 

Considerable  changes,  it  is  true,  are  taking 
place  in  the  mode  of  conducting  business  in 
some  parts  of  the  continent.  Professor  Cliffe 
Leslie,  who  is  well  known  to  be  intimately 
acquainted  with  the  economical  systems  of 
the  continental  countries,  attnbutes  the  rise 
of  prices  in  Germany  in  a  great  degree  to  the 
quicker  circulation  of  the  money,  and  the 
freer  use  of  instruments  of  credit.  In  the 
Fortnightly  Review  for  November,  1870  (pp. 
568-9),  he  says :  "  The  improvement  in  loco- 
motion and  in  commercial  activity  which 
have  so  largely  augmented  the  money-mak- 
ing power  of  the  Germans,  -have  also  quick- 
ened prodigiously  the  circulation  of  money  ; 
and  the  development  of  credit,  likewise  fol- 
lowing industrial  progress,  has  added  to  the 
volume  of  the  circulating  medium  a  mass  of 
substitutes  for  money  which  move  with  greater 
velocity.  A  much  smaller  amount  of  money 
than  formerly  now  suffices  to  do  a  given 
amount  of  business,  or  to  raise  prices  to  a 
given  range  ;  and  to  the  increased  amount  of 
actual  money  now  current  in  Germany  we 
must  add  a  brisk  circulation  of  instruments 
of  credit.  Were  the  circulating  medium  com- 
posed of  coin  alone,  whatever  the  amount  of 
the  precious  metals  issuing  from  the  mines, 
or  circulating  in  other  countries,  and  what- 
ever the  price  of  German  commodities  in 
markets  abroad,  no  rise  in  the  prices  of  Ger- 


man commodities  at  home  could  take  plae» 
without  additional  coin  to  sustain  it. 

So  different,  then,  are  the  commercial 
habits  of  different  peoples,  that  there  evident- 
ly  exists  no  proportion  whatever  between  the 
amount  of  currency  in  a  country  and  the 
aggregate  of  the  exchanges  which  can  be  ef- 
fected by  it.  Even  if  we  had  reliable  statis- 
tics of  the  amount  of  currencies,  such  data 
should  be  regarded  as  indicating,  not  the 
comparative  abundance  or  scarcity  of  money, 
but  the  degree  of  civilization,  of  providence, 
or  of  complexity  of  banking  organization,  in 
the  country. 

CONCLUSION. 

From  all  the  above  considerations  it  fol- 
lows that  the  only  method  of  regulating  the 
amount  of  the  currency  is  to  leave  it  at  per- 
fect freedom  to  regulate  itself.  Money  must 
find  its  own  level  like  water,  and  flow  in  aed 
out  of  a  country,  according  to  fluctuations  of 
commerce  which  no  government  can  foresee 
or  prevent.  The  manner  in  which  paper 
notes  may  be  used  to  represent  and  replace 
part  of  the  metallic  currency  should  be  strict 
ly  regulated,  because  otherwise  belief  in  the 
existence  of  metallic  money  is  created  when 
there  is  no  such  money  to  warrant  the  belief. 
But  the  amount  of  money  itself  can  be  no 
more  regulated  than  the  amounts  of  corn, 
iron,  cotton,  or  other  common  commodities 
produced  and  consumed  by  a  people.  It 
must  be  allowed,  indeed,  to  be  no  easy  matter 
to  discriminate  precisely  and  soundly  between 
those  points  at  which  the  legislator  must  in- 
terfere in  the  management  of  the  currency 
and  lay  down  a  fixed  rule,  and  those  points  at 
which  perfect  freedom  must  be  maintained. 

A  comparison  of  our  present  laws  regard- 
ing currency  and  trade,  with  those  which  ex- 
isted in  this  country  from  the  tenth  to  the 
fourteenth  century,  will  show  a  curious 
double  progress.  Many  things  which  our 
ancestors  attempted  to  regulate  by  law  are 
now  left  free  by  general  consent,  and  other 
things  which  they  left  free,  or  nearly  so,  ar« 
now  strictly  regulated.  The  rates  of  wages 
the  price  of  the  quartern  loaf,  the  exercise  of 
various  trades,  were  then  the  subject  of  legis- 
letion,  though  we  know  that  they  cannot  be 
properly  brought  within  the  scope  of  legisla- 
tive control.  On  the  other  hand,  an  endless 
diversity  of  weights  and  measures  were  for- 
merly  used  in  different  parts  of  the  country, 
and  little  or  no  attempt  was  made  to  reduce 
them  to  any  system  or  precise  definition. 
Almost  every  important  town,  too,  had  its 
mint  in  the  earlier  centuries,  and  barons  and 
great  ecclesiastics  often  exercised  the  right  of 
issuing  their  own  money.  There  are  still  a  very 
few  persons  who  advocate  free  coinage;  but, 
by  almost  general  consent,  the  work  of  coin- 
ing metallic  money  is  now,  in  every  civilized 
country,  committed  to  the  care  of  the  State. 
We  provide  for  a  uniform  system  of  coins 
with  the  same  care  that  we  establish  a  nation* 


MONEY  AND  TILE  MECHANISM  oF  KXCHANGE. 


[148J  95 


al  system  of  weights  and  measures.  But 
while  we  thus  take  the  greatest  care  of  the 
metallic  currency  in  one  respect,  we  have  ut- 
terly abandoned  all  the  futile  attempts 
which  were  in  former  centuries  made  to 
bring  bullion  into  the  kingdom  in  order  to 
set  the  mint  to  work. 

We  must  deal  with  the  paper  currency  in 
an  analogous  manner,  and  regulate  it  both 
more  and  less  than  hitherto.  Private  issues 
should  disappearlike  private  mints, and  each 
kingdom  should  have  one  uniform  paper  cir- 
culation, issued  from  a  single  central  State 
department,  more  resembling  a  mint  than  a 
bank.  The  manner  of  issuing  this  paper 
currency  should  be  strictly  regulated  in  one 
sense;  the  paper  circulation  should  be  made 
to  increase  and  diminish  with  the  amount  of 


gold  deposited  in  exchange  for  it.  At  the- 
same  time,  no  thought  need  be  taken  about 
the  amount  so  issued.  The  purpose  of  tho 
strict  regulation  is  not  to  govern  the  amount, 
but  to  leave  that  amount  to  vary  according 
to  the  natural  laws  of  supply  arid  demand. 
In  my  opinion,  it  is  the  ipsue  of  paper  repre- 
scntative  notes  accepted  im  place  of  coin. « 
which  constitutes  an  arbitrary  interference 
with  the  national  laws  governing  the  vari- 
ations  of  a  purely  metallic  currency,  so  that 
strict  legislative  control  in  one  way  leads  to 
more  real  freedom  in  another.  I  am  quite 
willing  to  allow,  however  that  questions  or 
great  nicety  and  subtlety  arise  in  this  sub. 
ject,  and  that  only  in  the  gradual  progress 
of  economic  science  can  they  be  finally  set 
at  rest 


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ninsions  of  the  Senses;  and  other  Es- 
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lor, M.  A. 

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The  Morphine  Habit.  By  Dr.  B.  BaH, 
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Ribot.    Translated    from   the  irencfc 

by  J.  Fitzgerald,  M.  A. 
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Ernst  Haeckel,  of  the  University  of 
Jena.  With  a  prefatory  Note  by  Prof. 
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Mo.  106. 
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Ultimate  Finance.  A  True  Theory  of 
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English,  Past  and  Present.  Part  I. 
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The  Pleasures  of  Life. 

John  Lubbock,  Bart. 


Part  II.     By  Sir 


Psychology  of  Attention.    By  Th.  Ri- 

bot.     Translated  from  the  French  by 
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Ho.  118.  Hypnotism.  Its  History  and  Develop" 
'  ment.  By  Fredrik  Bjornstrom,  M.  D., 
Head  Physician  of  the  Stockholm  Hos- 
pital, Professor  of  Psychiatry.  Late 
Royal  Swedish  Medical  Councillor. 
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Swedish  Edition  by  Baron  Nils  Posse, 
M.  G.,  Director  of  the  Boston  School 
of  Gymnastics.  (Double  number.) 

H*.  JI4.  Christianity  and  Agnosticism.  A  Con- 
troversy. Consisting  of  papers  contri- 
buted to  The  Nineteenth,  Century  by 
Henry  Wace,  D.  D.,  Prof  Thos.  H. 
Huxley,  The  Bishop  of  Petersborough, 
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ory of  Natural  Selection,  with  some  of 
its  Applications.  Part  I.  By  Alfred 
Russel  Wallace,  LL.  D.,  F.  L.  S.,etc. 
Illustrated.  (Double  number.) 

Mo  1VJ.  Darwinism  :  An  Exposition  of  the  The- 
ory of  Natural  Selection,  with  some  of 
its  Applications.  Part  II.  Illustrated. 
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Ma  117.    Modern  Science  and  Mod.  Thought.    By 

b.  Laing.  Illustrated.    Double  number. 
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No.  121.     rtllitarianlsra.     By  John  Stuart  Mill. 

No.  122.    Upon  the  Origin  of  Alpine  and  I  tall  am 
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Prof.  A.  Schaffle. 
I  Darwinism    A    Politics.    By  David  G. 

Ritchie,  M.  A. 

Administrative  Nihilism.    By  Thoma* 
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No. 
No. 

No. 

No. 

No. 

No. 

No. 
No. 

No. 
No. 
No. 


No. 
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125. 
126. 

127. 
128. 

129. 
130. 

131. 
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133. 
134. 
135. 


136. 
137. 
138. 
139. 


No.  140. 


No. 
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No. 

No. 
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141. 
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143. 
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147. 
148. 


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Mantegazza,  Illustrated.  Parti.  (Dou- 

ble number.) 
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(Double  number.) 
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Toynbee,  Tutor  of  Baliol  College,  Ox- 

ford.    With  a  short  memoir  by  6.  Jow- 

ett.     Parti.     (Double  number.) 
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(Double  number). 
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Taylor.     Illustrated.     Part  I.      (Dou- 

ble number.) 
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(Double  number.) 
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Geddes  and  J.  Arthur  Thomson.    Illus- 

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ductors.     (Illustrated.)  By  Gerald  Mot 

loy.D.D.,  D.  Sc. 
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How  the  Geometrical  Lines  have  their 

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Rice. 

Are  the  Effects  of  Use  and   Disuse   In- 

herit t-d  I    By  William  Platt  Ball. 
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